VILLAGE OF FARMINGDALE NASSAU COUNTY, NEW YORK (the Village )

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1 This Preliminary Official Statement and the information in it are subject to completion and amendment in a final official statement. This Preliminary Official Statement does not constitute an offer to sell or the solicitation of an offer to buy and there may not be any sale of the Bonds offered by this Preliminary Official Statement, in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration of qualification under the securities laws of that jurisdiction. SERIAL BONDS BANK QUALIFIED PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 1, 2018 RATING: S&P Global Ratings AA/Stable In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the Village, under existing statutes and court decisions and assuming continuing compliance with certain tax certifications described herein, (i) interest on the Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the Code ), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed for taxable years beginning prior to January 1, In addition, in the opinion of Bond Counsel to the Village, under existing statutes, interest on the Bonds is exempt from personal income taxes of New York State and its political subdivisions, including The City of New York. See "TAX MATTERS herein. The Village will designate the Bonds as qualified tax-exempt obligations pursuant to the provisions of Section 265(b)(3) of the Code. VILLAGE OF FARMINGDALE NASSAU COUNTY, NEW YORK (the Village ) $7,140,000 PUBLIC IMPROVEMENT SERIAL BONDS (the Bonds ) Dated: Date of Issue Principal Due: July 15, 2019 July 15, 2032 Interest Due: July 15, 2019, and semi-annually thereafter on January 15 and July 15 Bond Maturity Schedule Year Amount Rate Yield Year Amount Rate Yield Year Amount Rate Yield 2019 $225, $545, $590,000 * , , ,000 * , , ,000 * , ,000 * ,000 * , ,000 * * Subject to redemption prior to maturity. (See DESCRIPTION OF THE BONDS - Optional Redemption, herein). The Bonds are general obligations of the Village of Farmingdale, Nassau County, New York (the Village ), and will contain a pledge of the faith and credit of the Village for the payment of the principal thereof and interest thereon and, unless paid from other sources, the Bonds are payable from ad valorem taxes which may be levied upon all the taxable real property within the Village, subject to certain statutory limitations imposed by Chapter 97 of the New York Laws of 2011, as amended (the Tax Levy Limit Law ). (See TAX INFORMATION - Tax Levy Limit Law herein.) Interest on the Bonds will be payable July 15, 2019, and semi-annually thereafter on January 15 and July 15 in each year until maturity. The Bonds maturing on or after July 15, 2027 will be subject to redemption prior to maturity at the option of the Village on July 15, 2026 and thereafter on any date, as a whole or in any part, in accordance with the terms described herein. (See DESCRIPTION OF THE BONDS - Optional Redemption ). The Bonds will be issued as registered Bonds and, at the option of the purchaser, will be registered either in the name of the purchaser or in the name of Cede and Co., as nominee of The Depository Trust Company (DTC), Jersey City, New Jersey, which will act as securities depository for any Bonds issued in book-entry form. Individual purchases of book-entry bonds will be made in book-entry form only, in principal amounts of $5,000 or integral multiples thereof. Purchasers will not receive certificates representing their ownership interests in book-entry Bonds. Principal and interest on book-entry bonds will be paid by the Village to DTC, which will in turn remit such principal and interest to its Participants, for subsequent distribution to Beneficial Owners of the Bonds, as described herein. See ( DESCRIPTION OF THE BONDS - Description of Book-Entry System herein.) The Bonds are offered when, as and if issued and received by the Purchaser and subject to the receipt of the final approving legal opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the Village. It is anticipated that the Bonds will be available for delivery through the facilities of DTC in Jersey City, New Jersey on or about October 31, THE VILLAGE DEEMS THIS OFFICIAL STATEMENT TO BE FINAL FOR PURPOSES OF SECURITIES AND EXCHANGE COMMISSION RULE 15c2-12 (THE RULE ). THE VILLAGE WILL DELIVER AN UNDERTAKING TO PROVIDE CONTINUING DISCLOSURE (AS DEFINED IN THE RULE) AS REQUIRED BY THE RULE (SEE APPENDIX C - FORM OF DISCLOSURE UNDERTAKING ) HEREIN.

2 VILLAGE OF FARMINGDALE 361 Main Street Farmingdale, New York VILLAGE OFFICIALS RALPH EKSTRAND Mayor WILLIAM A. BARRETT Deputy Mayor ANTHONY ADDEO CHERYL L. PARISI WALTER PRIESTLEY Trustees BRIAN HARTY Village Administrator/Clerk-Treasurer BARBARA KELLY Deputy Village Clerk-Treasurer CLAUDIO DEBELLIS, ESQ. Attorney for the Village HAWKINS DELAFIELD & WOOD LLP New York, New York Bond Counsel Financial Advisor 1205 Franklin Avenue, Suite 335 Garden City, NY P: F:

3 No person has been authorized by the Village to give any information or to make any representations not contained in this Official Statement, and, if given or made, such information or representations must not be relied upon as having been authorized by the Village. This Official Statement does not constitute an offer to sell or solicitation of an offer to buy any of the Bonds in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. The information, estimates and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Village since the date hereof. TABLE OF CONTENTS Page DESCRIPTION OF THE BONDS... 5 Authorization and Purpose... 5 Nature of Obligation... 6 Optional Redemption... 6 Description of Book-Entry System... 7 Certificated Bonds... 8 THE VILLAGE... 9 General Information... 9 Population Characteristics... 9 Comparative Housing, Income and Population Data... 9 Selected Listing of Major Employers Form of Government Budgetary Procedure Employees Employee Pension Benefits Other Post Employment Benefits Unemployment Rate Statistics Cybersecurity Other Information FINANCIAL INFORMATION Financial Statements New York State Comptroller s Office Fiscal Stress Designation Village Investment Policy State Aid TAX INFORMATION Real Property Taxes Valuations PILOT Development Revaluation of Village Properties Tax Certiorari Matters Tax Rate per $1000 (Assessed) Constitutional Taxing Power Tax Collection Procedure Larger Taxpayers Real Estate Taxes and Tax Collection Record Tax Levy Limit Law VILLAGE INDEBTEDNESS Statutory Procedure Debt Outstanding End of Fiscal Year Details of Outstanding Indebtedness Computation of Debt Limit Debt Statement Summary Estimated Overlapping Indebtedness Capital Project Plans Bonded Debt Service REMEDIES UPON DEFAULT MUNICIPAL BANKRUPTCY LITIGATION OFFICE OF THE NEW YORK STATE COMPTROLLER S FISCAL STRESS MONITORING SYSTEM MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE TAX MATTERS BOND RATING DISCLOSURE UNDERTAKING Compliance History LEGAL MATTERS FINANCIAL ADVISOR MISCELLANEOUS REVENUES, EXPENDITURES AND FUND BALANCE GENERAL FUND APPENDIX A COMPARISON OF BUDGET AND ACTUAL RESULTS GENERAL FUND..... APPENDIX A-1 BALANCE SHEETS GENERAL FUND...APPENDIX A AUDITED FINANCIAL STATEMENTS.....APPENDIX B FORM OF DISCLOSURE UNDERTAKING APPENDIX C FORM OF OPINION OF BOND COUNSEL APPENDIX D

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5 OFFICIAL STATEMENT of the VILLAGE OF FARMINGDALE NASSAU, NEW YORK Relating To $7,140,000 Public Improvement Serial Bonds This Official Statement, which includes the cover page and appendices hereto, has been prepared by the Village of Farmingdale, Nassau County, New York (the Village, County, and State, respectively) in connection with the sale by the Village of $7,140,000 Public Improvement Serial Bonds (the Bonds ). All quotations from and summaries and explanations of provisions of the Constitution and laws of the State and acts and proceedings of the Village contained herein do not purport to be complete and are qualified in their entirety by reference to the official compilations thereof and all references to the Bonds and the proceedings of the Village relating thereto are qualified in their entirety by reference to the definitive form of the Bonds and such proceedings. DESCRIPTION OF THE BONDS The Bonds are general obligations of the Village, and will contain a pledge of its faith and credit for the payment of the principal of and interest on the Bonds as required by the Constitution and laws of the State of New York (State Constitution, Art. VIII, Section 2; Local Finance Law, Section ). All the taxable real property within the Village is subject to the levy of ad valorem taxes to pay the Bonds and interest thereon, subject to certain statutory limitations imposed by Chapter 97 of the New York Laws of 2011, as amended. (See TAX INFORMATION - Tax Levy Limit Law herein) Interest on the Bonds will be payable July 15, 2019, and semi-annually thereafter on January 15 and July 15 in each year until maturity. The Record Date for the Bonds will be the close of business on the last business day of the month preceding each interest payment date. The Bonds will be issued as registered Bonds and, at the option of the purchaser, will be registered either in the name of the purchaser, or in the name of Cede & Co., as nominee of The Depository Trust Company, Jersey City, New Jersey, which will act as securities depository for any Bonds issued in book-entry form. Individual purchases of book-entry bonds will be made in book-entry form only, in principal amounts of $5,000 or integral multiples thereof. Purchasers will not receive certificates representing their ownership interests in book-entry Bonds. Principal and interest on book-entry bonds will be paid by the Village to DTC, which will in turn remit such principal and interest to its Participants, for subsequent distribution to the Beneficial Owners of the Bonds as described herein. (See DESCRIPTION OF THE BONDS - Book- Entry-Only System herein) The fiscal and paying agent for the Bonds will be the Village Clerk of the Village of Farmingdale, 361 Main Street, Farmingdale, New York 11753, address: bharty@farmingdalevillage.com. Authorization and Purpose The Bonds are being issued pursuant to the Constitution and statutes of the State of New York, including among others, the Village Law, the Local Finance Law and various bond resolutions duly adopted by the Board of Trustees of the Village on their respective dates for the following purposes: 5

6 Date Amount Notes Authorized Original Amount Purposes Authorized Authorized Outstanding Unissued Financing to Bonds Aug 3, 2015 Construction of improvements to various Village roads (1) amended May 2, 2016 Acquisition of a parcel of real property in the Village to be used as a parking lot $3,000,000 $500,000 $850,000 $850,000 $1,350,000 Aug 15, ,000,000 1,000, ,000 Construction of improvements to parking lots (2) amended Oct 2, Aug 3, ,450,000 2,000, ,000,000 Construction of improvements to the Village water system (3) May 4, ,195, ,000 1,670, ,000 Construction of improvements to a parcel of real property owned by the Village Oct 2, , , ,000 Construction of improvements to existing fueling station Aug 6, , , , ,000 Construction of improvements to parking lots Aug 6, ,100, ,100,000 2,100,000 2,100,000 $13,170,000 $3,950,000 $4,920,000 $3,250,000 $7,140,000 (1) $1,650,000 having been previously issued with the Village s Public Improvement Serial Bonds (2) $1,450,000 having been previously issued with the Village s Public Improvement Serial Bonds (3) $1,200,000 having been previously issued with the Village s Public Improvement Serial Bonds A portion of the proceeds of the Bonds in the principal amount of $3,890,000 along with $60,000 in available Village funds will be used to redeem a like amount of currently outstanding Bond Anticipation Notes, previously issued for the above stated purposes. The remaining proceeds of the Bonds in the principal amount of $3,250,000 will provide original financing for the above stated purposes. Nature of Obligation Each Bond when duly issued and paid for will constitute a contract between the Village and the holder thereof. The Bonds will be general obligations of the Village and will contain a pledge of the faith and credit of the Village for the payment of the principal thereof and the interest thereon. For the payment of such principal of and interest on the Bonds, the Village has the power and statutory authorization to levy ad valorem taxes on all taxable real property in the Village, subject to certain statutory limitations imposed by the Tax Levy Limit Law. (See TAX INFORMATION - Tax Levy Limit Law herein) Under the Constitution of the State, the Village is required to pledge its faith and credit for the payment of the principal of and interest on the Bonds, and the State is specifically precluded from restricting the power of the Village to levy taxes on real estate for the payment of interest on or principal of indebtedness theretofore contracted. However, the Tax Levy Limit Law imposes a statutory limitation on the Village s power to increase its annual tax levy. The amount of such increase is limited by the formulas set forth in the Tax Levy Limit Law. (See TAX INFORMATION - Tax Levy Limit Law herein.) Optional Redemption The Bonds maturing on or before July 15, 2026 will not be subject to redemption prior to maturity. The Bonds maturing on or after July 15, 2027 will be subject to redemption prior to maturity at the option of the Village on July 15, 2026 and thereafter on any date, as a whole or in part, and if in part in any order of their maturity and in any amount within a maturity (selected by lot within a maturity), at par, plus accrued interest to the date of redemption. The Village may select the maturities of the Bonds to be redeemed and the amount of each maturity selected, as the Village shall determine to be in the best interest of the Village at the time of such redemption. If less than all of the Bonds of any maturity are to be redeemed prior to maturity, the particular Bonds of such maturity to be redeemed shall be selected by the Village by lot in any customary manner of selection as determined by the Village. Notice of such call for redemption shall be given by mailing such notice to the registered owner not more than sixty (60) nor less than thirty (30) days prior to such date. Notice of redemption having been given as aforesaid, the Bonds so called for redemption shall, on the date of 6

7 redemption set forth in such call for redemption, become due and payable, together with accrued interest to such redemption date, and interest shall cease to be paid thereon after such redemption date. Description of Book-Entry System The Depository Trust Company ( DTC ), Jersey City, New Jersey, will act as securities depository for any of the Bonds (sometimes referred to in this section as the Securities ) issued in book-entry form. The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each maturity of the Securities, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of the Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AA+, Stable Outlook. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC s records. The ownership interest of each actual purchaser of each Security ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing 7

8 instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Village, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Village. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Village may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Village believes to be reliable, but the Village takes no responsibility for the accuracy thereof. Source: The Depository Trust & Clearing Corporation THE VILLAGE WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (II) THE PAYMENTS BY DTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS; (III) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO BONDHOLDERS; (IV) THE SELECTION BY DTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; OR (V) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDOWNER. Certificated Bonds DTC may discontinue providing its services with respect to the Bonds issued in book-entry form at any time by giving reasonable notice to the Village and discharging its responsibilities with respect thereto under applicable law, or the Village may terminate its participation in the system of book-entry-only transfers through DTC at any time. In the event that such book-entry-only system is discontinued, the following provisions will apply: the Bonds will be issued in fully registered form in denominations of $5,000 each or any integral multiple thereof for any single maturity. Principal of the Bonds when due will be payable upon presentation at the principal corporate trust office of a bank or trust company located and authorized to do business and act as a fiscal agent in the State of New York to be named by the Village. Interest on the Bonds will remain payable on July 15, 2019, and semi-annually thereafter on January 15 and July 15, in each year to maturity. Interest will be payable by check drawn on the fiscal agent and mailed to the registered owner on such interest payment date at the address as shown on the registration books of the fiscal agent as of the close of business on the the last day of the month preceding each such interest payment date. Certificated Bonds may be transferred or exchanged at no cost to the registered owner at any time prior to maturity at the office of the fiscal agent for Bonds in the same or any other authorized denomination or denominations in the same aggregate principal amount upon the terms set forth in the Certificate of Determination executed by the Village Treasurer authorizing the sale of the Bonds and fixing the details thereof and in accordance with the Local Finance Law. The fiscal agent shall not be obligated to make any such transfer exchange of Bonds between the last day of the calendar month preceding an interest payment date and such interest payment date. 8

9 THE VILLAGE General Information The Village is situated in New York State (the State ), in the easternmost portion of Nassau County (the County ) on the western boundary of Suffolk County, in the Town of Oyster Bay, (the Town ). The Village is situated approximately 35 miles east of Manhattan in New York City. The Village encompasses approximately one square mile and is primarily residential in character with some commercial development. Residential development consists substantially of single-family homes with some multi-family structures; commercial activity is centered in the Village s business district. A portion of Bethpage State Park is located within the Village boundaries, and the Village includes a station on the Main Line of the Long Island Railroad. New York State Routes 24 and 109 traverse the Village, New York State Road 135 and the Republic Airport are both located just outside the Village. The Village was founded in 1687 and incorporated in 1904, and provides fire protection, code enforcement, highway maintenance and water supply services. Police protection and sanitary sewer services are provided by the County. Population Characteristics Year Village of Farmingdale Nassau County New York State ,297 1,428,838 18,241, ,946 1,321,582 17,557, ,022 1,287,348 17,990, ,399 1,334,544 18,976, ,189 1,339,532 19,378,102 Source: U.S. Department of Commerce, Bureau of the Census. Comparative Housing, Income and Population Data Age Distribution: Village County State U.S. Median Age Person/Household Housing: % Owner Occupied Housing Units Median Value Housing ($) 408, , , ,900 Median Gross Rent ($) 1,260 1,429 1, Income: Per Capita Income 38,049 39,935 30,011 26,059 Median Family Income 98, ,838 65,897 60,609 % Below Poverty Level Source: 2010 Census of Population and Housing, U.S. Department of Commerce, Bureau of the Census and American Community Survey unless otherwise noted. 9

10 Selected Listing of Major Employers Name Type Approx. No. of Employees (1) U.S. Postal Service Governmental 90 Farmingdale UFSD Public Schools 267 Village of Farmingdale Governmental 66 Daleview Nursing Home Nursing Home 200 Carmen Callaghan & Ingham Law Firm 52 Guercio & Guercio Law Firm 30 (1) May include part-time employees Source: Village Officials. Form of Government Subject to the provisions of the State Constitution, the Village operates pursuant to the Village Law, the Local Finance Law, other laws generally applicable to the Village, and any special laws applicable to the Village. Under such laws, there is no authority for the Village to have a charter, but pursuant to the Village Law and other laws generally applicable to home rule, the Village may from time to time adopt local laws. The Village Board of Trustees (the Board ), is the legislative, appropriating, governing and policy determining body of the Village and consists of four trustees, elected at large to serve four-year terms, plus the Mayor, who likewise serves a four-year term. The Mayor and each Trustee may serve an unlimited number of terms. Every two years the voters of the Village elect two Trustees and in the intervening election, the voters elect a Mayor and two Trustees. It is the responsibility of the Board to enact legislation by resolution and by local law, after public hearing. Annual operating budgets for the Village must be approved by the Board. The original authorization of all Village indebtedness is subject to approval by the Village Board. (See VILLAGE INDEBTEDNESS - Statutory Procedure herein.) The Mayor is the chief executive officer of the Village and has the right to succeed him or herself. In addition, the Mayor is a full member of and the presiding officer of the Board. The Mayor has a number of appointment powers, some of which are subject to the approval of the Board. The Board has elected to combine the position of Clerk-Treasurer. The Village Clerk-Treasurer also serves as the Village Administrator. The Village Clerk-Treasurer is appointed by the Mayor, subject to the confirmation of the Board and serves at the pleasure of the Board. The Clerk-Treasurer s responsibilities include custody of the corporate seal, books, records, and papers of the Village and all reports, communications and minutes of meetings of the Village boards and commissions. The Village Clerk-Treasurer is the chief fiscal officer and administrative officer of the Village responsible for maintaining Village accounting records, collection of taxes, personnel records, investment of Village funds, and debt management. The Village Attorney is also appointed by the Mayor, subject to Board confirmation Budgetary Procedure The Clerk-Treasurer also serves as the budget officer. The budget officer prepares a tentative budget and presents it to the Board of Trustees. Modifications to the tentative budget by the Board of Trustees result in the preliminary budget and a public hearing is held by the Board of Trustees thereon. Subsequent to the public hearing, revisions, if any, are made and the annual budget is then adopted by the Board of Trustees as its final budget for the coming fiscal year. Village budgets are not subject to referendum. (See also TAX INFORMATION - Tax Levy Limit Law, herein.) Employees The Village provides services through approximately 22 full time and 43 part time employees. The Civil Service Employees Association, Inc. represents 12 employees, under a contract which expires May 31,

11 Employee Pension Benefits All full-time employees of the Village are members of the New York State and Local Employees Retirement System ( ERS ). The obligations of employers and employees to contribute and the benefits to employees are governed by the New York State Retirement and Social Security Law ( NYSRSSL ). The system offers retirement benefits which are related to years of service and final average salary, vesting of retirement benefits, death and disability benefits and optional methods of benefit payments. All benefits generally vest after five years of credited services, except for employees hired on or after January 1, NYSRSSL provides that all employers in the ERS are jointly and severally liable for any unfunded amounts. Such amounts are collected through annual billings to participating employers. Participating employers are required to make a minimum payment of 4.5% of payroll each year, including years in which investment performance of the fund would make a lower employer contribution possible. All full-time employees and certain part-time employees, participate in the retirement system. Since the Village joined the ERS after July 27, 1976, each participating employee hired on or before December 31, 2009 is required to contribute 3% of their gross annual salary toward the costs of retirement programs until they attain ten years in the Retirement System, at such time contributions become voluntary. The Village is authorized to establish a retirement contribution reserve fund for the purpose of financing retirement contributions in the future. The New York State Retirement System has advised the Village that municipalities can elect to make employer contribution payments in December of any year, prior to the scheduled payment date in the following February. If such payments are made in December prior to the scheduled payment date of February, such payments may be made at a discount amount. Following the significant capital market declines in 2008 and 2009, in certain years the State's Retirement System portfolio has experienced negative investment performance and severe downward trends in market earnings. As a result of the foregoing, the employer contribution rate for the State s Retirement System continues to be higher than the 4.5% minimum contribution rate established by law. The State calculates contribution amounts based upon a five-year rolling average. As a result, contribution rates are expected to remain higher than the minimum contribution rates set by law in the near-term. To mitigate the expected increases in the employer contribution rate, legislation has been enacted that permits local governments and school districts to borrow a portion of their required payments from the State pension plan at an interest rate of 5%. The legislation also requires those local governments and school districts, who decide to amortize their pension obligations pursuant to the law, to establish reserve accounts to fund payment increases that are a result of fluctuations in pension plan performance. In 2013, a pension smoothing option was approved by the State Legislature that authorizes municipalities and school districts to amortize over seven years a portion of the pension cost spikes precipitated by the 2008 financial crash and high pension costs in general for employees across the State. The pension smoothing option, which was approved as part of the State's budget, authorizes municipalities and school districts to contribute 14.13% of employee costs toward pensions, rather than the 16.25% currently required, which is up from the current rate of 11.8%. The Village has not opted-in to such pension smoothing option. The Village made the following contributions to the Retirement Systems: Fiscal Year Ending May 31st: ERS Budget $217,986 $329,906 $292,300 $270,000 $265,979 Actual 276, , , , ,083 Source: Village of Farmingdale Budget and Village Audits In FY 2018 the Village paid $225,289 in ERS for which it budgeted $259,700 for this purpose. The Village s FY 2019 budget contains $242,975 for its ERS contributions. In the past the Village has not amortized its ERS payments and has no future plans to do so. A more in-depth discussion of the Villages pension liabilities appears in the Village s most recently available audited financial statements, attached as Appendix B. Other Post Employment Benefits GASB Statement No. 45 ( GASB 45 ) of the Governmental Accounting Standards Board ( GASB ), requires state 11

12 and local governments to account for and report their costs associated with post-retirement healthcare benefits and other nonpension benefits ( OPEB ). GASB 45 generally requires that employers account for and report the annual cost of the OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Under previous rules, these benefits have generally been administered on a pay-as-you-go basis and have not been reported as a liability on governmental financial statements. Only current payments to existing retirees were recorded as an expense. GASB 45 requires that state and local governments adopt the actuarial methodologies to determine annual OPEB costs. Annual OPEB cost for most employers will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due. Under GASB 45, based on actuarial valuation, an annual required contribution ( ARC ) will be determined for each state or local government. The ARC is the sum of (a) the normal cost for the year (the present value of future benefits being earned by current employers) plus (b) amortization of the unfunded accrued liability (benefits already earned by current and former employees but not yet provided for), using an amortization period of not more than 30 years. If a municipality contributes an amount less than ARC, a net OPEB obligation will result, which is required to be recorded as a liability on its financial statements. GASB 45 does not require that the unfunded liabilities actually be funded, only that the Village account for its unfunded accrued liability and compliance in meeting its ARC. Actuarial valuation will be required every 2 years for the Village. The Village contracted with an actuarial firm to perform the required analysis. A summary of the results of the analysis appears in the Village s most recently available audited financial statements, attached as Appendix B. Unemployment Rate Statistics Unemployment statistics are not available for the Village as such. The smallest area for which such statistics are available (which includes the Village) is the Town of Oyster Bay, (the Town ). The information set forth below with respect to the Town, County and the State is included for information purposes only. It should not be inferred from the inclusion of such data in this Official Statement that the Town, County or the State is necessarily representative of the Village, or vice versa. YEARLY AVERAGE Average Average Average Average Average Town of Oyster Bay (1) 5.50% 4.40% 3.90% 3.70% 3.90% Nassau County (1) 5.90% 4.80% 4.20% 3.90% 4.10% New York State (2) 7.70% 6.30% 5.30% 4.80% 4.70% 2018 MONTHLY FIGURES Jan. Feb. March April May June Town of Oyster Bay 4.10% 4.40% 3.80% 3.60% 3.30% 3.60% Nassau County 4.50% 4.70% 4.20% 3.80% 3.40% 3.70% New York State 5.10% 5.10% 4.80% 4.30% 3.70% 4.20% (1) Data were subject to revision on April 20, 2018 (2) Reflects revised population controls and model re-estimation Source: US Department of Labor Bureau of Labor and Statistics (Note: Figures not seasonally adjusted). 12

13 Cybersecurity The Village, like many other public and private entities, relies on technology to conduct its operations. As a recipient and provider of personal, private, or sensitive information, the Village faces multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computer and other sensitive digital networks and systems. To mitigate the risk of business operations impact and/or damage from cyber incidents or cyber-attacks, the Village has implemented certain security and operational control measures, and has obtained a cybersecurity liability policy. The Village has gone to Cloud based providers for the payroll, financial systems and water meter reading system. This helps to mitigate the risks since larger companies offering such Cloud based services have greater resources to invest in securing the data that the Village stores in their cloud. Should the Village computers be hacked, new computers could be introduced to continue business as usual. The Village also backs up its data to the Cloud on a daily basis. However, no assurances can be given that such security and operational control measures will be completely successful to guard against cyber threats and attacks. The results of any such attack could impact business operations and/or damage Village digital networks and systems and the costs of remedying any such damage could be substantial. Other Information The statutory authority for the power to spend money for the objects or purposes, or to accomplish the objects or purposes, for which the Bonds are to be issued is the Village Law, the General Municipal Law and other applicable law. Except to the extent shown in Estimated Overlapping Indebtedness, this official statement does not include the financial data of any political subdivision having power to levy taxes within the Village. No principal or interest upon any obligation of the Village is past due. The fiscal year of the Village is June 1 to May 31. Financial Statements FINANCIAL INFORMATION The Village has retained independent certified public accountants to audit its financial affairs. The most recent audit covers the fiscal year ended May 31, 2017, a copy of which is included as Appendix B. In addition, the financial affairs of the Village are subject to periodic review by the State Comptroller. A summary of Revenues, Expenditures and Fund Balance; Comparison of Budget and Actual Results; and Balance Sheets for the Village, based on the most recently available Village audit is included as Appendix A. The accounting policies of the Village conform to generally accepted accounting principles as they are applicable to governments. The Government Accounting Standards Board is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. New York State Comptroller s Office Fiscal Stress Designation The Village has been designated by the Office of the New York State Comptroller as having No Designation, having been assigned a fiscal score of 10.0%, based on its Fiscal Stress Monitoring System 2017 List and Details. The Village was assigned a fiscal score of 6.7% - No Designation in (See OFFICE OF THE NEW YORK STATE COMPTROLLER S FISCAL STRESS MONITORING SYSTEM, herein). Village Investment Policy The Village has adopted an investment policy which states that the Village will comply with the requirements of New York State statutes, as stated below, concerning the investment of Village monies. A copy of the Village s investment policy is available from the office of the Village Treasurer upon request. 13

14 Pursuant to State law, including Sections 10 and 11 of the General Municipal Law (the GML ), the Village is generally permitted to deposit moneys in banks or trust companies located and authorized to do business in the State, in addition to other authorized investments. All such deposits, including special time deposit accounts and certificates of deposit, in excess of amount insured under the Federal Deposit Insurance Act, are required to be secured in accordance with the provisions of and subject to the limitations of Section 10 of the GML. All instruments and investments are required to be payable or redeemable at the option of the owner within such times as the proceeds will be needed to meet expenditures for purposes for which the moneys were provided and, in the case of instruments and investments purchased with the proceeds of bonds or notes, shall be payable or redeemable in any event, at the option of the owner, within two years of the date of purchase. Unless registered or inscribed in the name of the Village, such instruments and investments must be purchased through, delivered to and held in custody of a bank or trust company in the State pursuant to a written custodial agreement as provided in Section 10 of the GML. State Aid The General Fund received financial assistance from the State as indicated below: Fiscal Year Total Total State Aid to Ending May 31st: Revenues State Aid Revenues (%) 2013 $5,790,051 $200, % ,996, , % ,769, , % ,019, , % ,090, , % 2018 (budget) 6,009, , % 2019 (budget) 6,300, , % Source: Village of Farmingdale and Village Audits If the State should experience difficulty in borrowing funds in anticipation of the receipt of State taxes in order to pay State aid to municipalities and school districts in the State, including the Village, in any year, the Village may be affected by a delay in the receipt of State aid until sufficient State taxes have been received by the State to make State aid payments. Additionally, if the State should not adopt its budget in a timely manner, municipalities and school districts in the State, including the Village, may be affected by a delay in the payment of State aid. The State is not constitutionally obligated to maintain or continue State aid to the Village. No assurance can be given that present State aid levels will be maintained in the future. State budgetary restrictions which eliminate or substantially reduce State aid could have a material adverse affect upon the Village requiring either a counterbalancing increase in revenues from other sources to the extent available, or a curtailment of expenditures. (See also MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE herein.) Real Property Taxes TAX INFORMATION The Village derives a major portion of its revenues from a tax on real property (See Revenues, Expenditures and Balances in Appendix A, herein.) On June 24, 2011, the Tax Levy Limit Law was enacted, which imposes a tax levy limitation upon the municipalities, school districts and fire districts in the State, including the Village, without providing an exclusion for debt service on obligations issued by municipalities and fire districts, including the Village. (See TAX INFORMATION - Tax Levy Limit Law, herein.) 14

15 Valuations Year Ending May 31st: (1) Assessed Valuation (2) $900,245,647 $891,047,725 $892,437,079 $969,291,596 $971,012,221 $1,044,303,229 State Equalization Rate % % % % % % Full Valuation (2) $900,245,647 $891,047,725 $892,437,079 $969,291,596 $971,012,221 $1,044,303,229 (1) As submitted to the Office of the New York State Comptroller. Review pending. (2) Exclusive of PILOTS (See TAX INFORMATION - PILOT Development herein.) Source: NYS Comptroller s Office and NYS Office of Real Property Management PILOT Development Over the past several years the Village has experienced growth in its residential and commercial tax base in the form of PILOTS. The below table outlines the assessment and tax revenue growth during this time period. (Figures rounded) FY 2016 FY 2017 FY 2018 FY 2019 Address Payment Assessment Payment Assessment Payment Assessment Payment Assessment 120 Secatogue Ave./148 S. Front St. $25,658 $3,308,800 $38,219 $3,308,000 $21,446 $17,684,000 $30,427 $18,921, Secatogue Ave./180 Atlantic Ave. 5, ,000 7, , ,210,000 7,416 6,644, Secatogue Ave. 2, ,300 2,116 3,175,200 18,276 3,397, N. Front St. 1, ,100 1,685 2,528,400 14,553 2,705,400 N Front St. 25 5, ,000 1, , Main Street 2, ,300 2, ,300 4,032 1,345,000 5,033 1,439, Main St. 5, ,600 6, ,600 10,369 3,400,000 12,943 3,638, Eastern Pkwy 5,982 1,040,000 7,088 1,040,000 6,932 1,890,000 12,497 3,745,000 Total $45,389 $6,496,700 $66,228 $7,390,300 $47,513 $36,407,600 $102,160 $40,679,000 Revaluation of Village Properties In FY 2011, the Village undertook a Village-wide real property revaluation project. The purpose of the project was to reassess each and every parcel of real property in the Village so as to result in 100% fair market value assessment of all parcels, and to adjust the proportionality of real property taxes paid with respect to all properties, residential and commercial. The Village believes that the revaluation enables it to more equitably assess Village taxes according to each property s fair market value. By resolution of the Board of Trustees dated October 10, 2009, the Village adopted Homestead status (for Village tax purposes) and established two rate classes (residential and commercial). An assessment update was recently completed for the 2018/2019 assessment roll. As a result of the assessment update, the proportionality of overall Village taxes and assessed valuations paid by residential property owners and commercial property is 63.97% and 36.03%, respectively. The Village will continue periodic updates in accordance with New York State Office of Real Property Tax Services ( ORPTS ) regulations to maintain 100% assessed valuation, thereby maintaining more accurate assessed valuations. Following the implementation of the Village s revaluation program, the Village has experienced a decline in the number of tax certiorari claims. The Village s revaluation program, which includes periodic assessment updates, should continue to minimize the amount of tax certiorari claims in the future. (See TAX INFORMATION - Tax Certiorari Matters, herein). Tax Certiorari Matters During the last decade, the Village has been confronted by several tax certiorari proceedings, instituted primarily by the owners of commercial buildings, seeking a reduction of the assessed value of said properties and a refund of excess taxes paid by them. Numerous tax certiorari claims for refunds of prior year s property taxes are currently pending. The Village s tax certiorari counsel is of the opinion that the most significant cases against the Village have been resolved and the currently pending cases will have marginal impact on the Village s budget. (See TAX INFORMATION - Revaluation of Village 15

16 Properties, and LITIGATION herein). The following schedule is a compilation of the amounts budgeted and expenditures made by the Village, for the purposes of paying real property tax refunds. Unaudited Year Ending May 31st: Budgeted $175,000 $165,000 $125,000 $125,000 $125,000 $141,500 Incurred 90,309 79, ,583 27,229 39, ,759 For the FY 2019, as of September 1, 2018 the Village has paid $52,430 in tax certiorari judgements of which $141,500 was budgeted for this purpose. The Village has not financed tax certiorari judgments in the past five years, however, the Village may finance any future judgment or settlement, if necessary, so as to mitigate any impact on future budgets. Tax Rate per $1000 (Assessed) Year Ending May 31st: Tax Rate (1) Homestead $3.45 $3.51 $3.19 $3.25 $3.06 Non-Homestead $6.28 $6.32 $5.88 $5.92 $5.76 (1) Figures may be rounded Source: New York State Comptroller s Office and Village of Farmingdale Budgets (Figures are rounded). Constitutional Taxing Power (See also TAX INFORMATION- Tax Levy Limit Law herein) Fiscal Year Ending May 31: (1) Five Year Average Full Valuation $904,080,549 $910,713,337 $924,806,854 Tax Limit (2%) 18,081,611 18,214,267 18,496,137 Add: Total Exclusions 1,493,575 1,177,527 1,408,216 Total Taxing Power 19,575,186 19,391,794 19,904,353 Less Tax Levy 3,697,607 3,760,026 3,847,082 Tax Margin $15,877,579 $15,631,768 $16,057,271 Percent of Tax Limit Exhausted 12.19% 14.18% 13.19% (1) As submitted to the Office of the New York State Comptroller. Review pending. Source: New York State Comptroller s Office and Village of Farmingdale Tax Collection Procedure Real property taxes are levied and become a lien annually on June 1. Payments must be received by the Village by July 1, after which time, penalties and interest will be assessed against the taxpayer. The Village generally conducts tax lien sales the second Tuesday in March. Property owners have until the morning of the sale to pay those taxes which are due. Property taxes not collected are placed on tax sale. Delinquent taxes not received within 60 days of year-end are recorded as deferred revenues. 16

17 Larger Taxpayers Name Type Assessed Value TDI Jefferson Station Apartments (PILOT) $25,566,600 (1) LIPA Utility 24,719,062 (1) (2) Staller Properties Apartments, Row Buildings 15,766,500 (Partial PILOT) Fairfield Apartments 14,799,900 Keyspan Utility 11,306,104 (1) Woodbridge Apartments 8,500,100 (1) Fulton St. LLC Apartments 8,025,000 (2) Hauppauge Properties LLC Shopping Center 7,144,400 (2) Farmingdale Commons LLC Shopping Center 6,803,600 (2) Elizabeth Gardens Corp Apartment/Co-op 6,156,800 (2) (1) May include multiple properties by the same owner (2) This taxpayer has filed a tax certiorari case against the Village Source: Village of Farmingdale TOTAL $128,788,066 (1) (2) (1) (2) Real Estate Taxes and Tax Collection Record Unaudited 2018 As of 9/1/2018 Year Ended May 31: Levy and Tax Collections: Taxes on Roll $3,560,449 $3,631,687 $3,684,611 $3,739,880 $3,697,607 $3,760,026 $3,847,082 Taxes on Roll and Tax Items (including PILOTS, re-levied items & other) $3,703,128 $3,770,770 $3,793,029 $3,921,678 $3,955,897 $3,998,727 $4,078,122 Collections During Year Tax Collections (includes mid-year adjustments) 3,553,265 3,588,598 3,613,759 3,705,874 3,622,195 3,949,444 3,933,434 Prior Years Taxes 87,401 15,761 7,879 66,517 49,177 77,565 11,692 Total Collections During Year $3,640,666 $3,604,359 $3,621,638 $3,772,391 $3,671,372 $4,027,009 $3,945,126 % Results % Tax Collected During Year (including PILOTS, re-levied items & other) 95.95% 95.17% 95.27% 94.50% 91.56% 98.77% 96.45% % Tax Collections During Year (including prior years) 98.31% 95.59% 95.48% 96.19% 92.81% % 96.74% Village Held Tax Liens 15,796 44, ,259 93, , , ,632 Source: Village of Farmingdale Tax Levy Limit Law Prior to the enactment of Chapter 97 of the Laws of 2011 on June 24, 2011, all the taxable real property within the Village had been subject to the levy of ad valorem taxes to pay the bonds and notes of the Village and interest thereon without limitation as to rate or amount. However, Chapter 97, as amended (the Tax Levy Limit Law ) imposes a tax levy limitation upon the Village for any fiscal year commencing after January 1, 2012 continuing through June 15, 2020 or later as provided in the Tax Levy Limit Law, without providing an exclusion for debt service on obligations issued by the Village. As a result, the power of the Village to levy real estate taxes on all the taxable real property within the Village is subject to statutory 17

18 limitations set forth in Tax Levy Limit Law, unless the Village complies with certain procedural requirements to permit the Village to levy certain year-to-year increases in real property taxes. The following is a brief summary of certain relevant provisions of Tax Levy Limit Law. The summary is not complete and the full text of the Tax Levy Limit Law should be read in order to understand the details and implications thereof. The Tax Levy Limit Law imposes a limitation on increases in the real property tax levy of the Village, subject to certain exceptions. The Tax Levy Limit Law permits the Village to increase its overall real property tax levy over the tax levy of the prior year by no more than the Allowable Levy Growth Factor, which is the lesser of one and two-one hundredths or the sum of one plus the Inflation Factor; provided, however that in no case shall the levy growth factor be less than one. The "Inflation Factor" is the quotient of: (i) the average of the 20 National Consumer Price Indexes determined by the United States Department of Labor for the twelve-month period ending six months prior to the start of the coming fiscal year minus the average of the National Consumer Price Indexes determined by the United States Department of Labor for the twelvemonth period ending six months prior to the start of the prior fiscal year, divided by: (ii) the average of the National Consumer Price Indexes determined by the United States Department of Labor for the twelve-month period ending six months prior to the start of the prior fiscal year, with the result expressed as a decimal to four places. The Village is required to calculate its tax levy limit for the upcoming year in accordance with the provision above and provide all relevant information to the New York State Comptroller prior to adopting its budget. The Tax Levy Limit Law sets forth certain exclusions to the real property tax levy limitation of the Village, including exclusions for certain portions of the expenditures for retirement system contributions and tort judgments payable by the Village. The governing board of the Village may adopt a budget that exceeds the tax levy limit for the coming fiscal year, only if the governing board of the Village first enacts, by a vote of at least sixty percent of the total voting power of the governing board of the Village, a local law to override such limit for such coming fiscal year. The Tax Levy Limit Law does not contain an exception from the levy limitation for the payment of debt service on either outstanding general obligation bonds or notes of the Village or such indebtedness incurred after the effective date of the Tax Levy Limit Law. As such, there can be no assurances that the Tax Levy Limit Law will not come under legal challenge for violating (i) Article VIII, Section 12 of the State Constitution for not providing an exception for debt service on obligations issued prior to the enactment of the Tax Levy Limit Law, (ii) Article VIII, Section 10 of the State Constitution by effectively eliminating the exception for debt service to general real estate tax limitations, and (iii) Article VIII, Section 2 of the State Constitution by limiting the pledge of its faith and credit by a municipality or school district for the payment of debt service on obligations issued by such municipality or school district. VILLAGE INDEBTEDNESS The New York State Constitution limits the power of the Village (and other municipalities and school districts of the State) to issue obligations and to otherwise contract indebtedness. Such constitutional limitations in summary form, and as generally applicable to the Village and the Bonds include the following: Purpose and Pledge. Subject to certain enumerated exceptions, the Village shall not give or loan any money or property to or aid of any individual or private corporation or private undertaking or give or loan its credit to or in aid of the foregoing or any public corporation. The Village may contract indebtedness only for a Village purpose and shall pledge its faith and credit for the payment of principal of and interest thereon. Payment and Maturity. Except for certain short-term indebtedness contracted in anticipation of taxes, or to be paid in one of the two fiscal years immediately succeeding the fiscal year in which such indebtedness was contracted, indebtedness shall be paid in annual installments commencing no later than two years after the date such indebtedness shall have been contracted and ending no later than the expiration of the period of probable usefulness of the object or purpose (as determined by statute) or, in the alternative, the weighted average period of probable usefulness of the several objects or purposes for which such indebtedness is to be contracted; no installment may be more than fifty per centum in excess of the smallest prior installment, unless the Village determines to issue debt amortized on the basis of substantially level or declining annual debt service. The Village is required to provide an annual appropriation for the payment of interest due during the year on its indebtedness and for the amounts required in such year for amortization and redemption of its serial bonds and bond anticipation notes. Debt Limit. The Village has the power to contract indebtedness for any Village purpose so long as the aggregate 18

19 principal amount thereof outstanding, subject to certain limited exceptions, shall not exceed seven per centum of the five-year average full valuation of taxable real property of the Village and subject to certain enumerated exclusions and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. The constitutional method of determining full valuation is by taking the assessed valuation of taxable real property as shown upon the latest completed assessment roll and dividing the same by the equalization rate as determined by the State Board of Real Property Services. The State Legislature is required to prescribe the manner by which such ratio shall be determined. Average full valuation is determined by taking the sum of the full valuation of the last completed assessment roll and the four preceding assessment rolls and dividing such sum by five. General. The Village is further subject to constitutional limitation by the general constitutionally imposed duty on the State legislature to restrict the power of taxation, assessment, borrowing money, contracting indebtedness and loaning the credit of the Village so as to prevent abuses in taxation and assessments and in contracting indebtedness; however, as has been noted under Nature of Obligation, the State Legislature is prohibited by a specific constitutional provision from restricting the power of the Village to levy taxes on real estate for the payment of interest on or principal of indebtedness theretofore contracted. However, the Tax Levy Limit Law imposes a statutory limitation on the Village s power to increase its annual tax levy. The amount of such increase is limited by the formulas set forth in the Tax Levy Limit Law. (See TAX INFORMATION - Tax Levy Limit Law herein.) There is no constitutional limitation on the amount that may be raised by the Village by tax on real estate in any fiscal year to pay principal of and interest on all indebtedness. However, the Tax Levy Limit Law, imposes a statutory limitation on the power of the Village to increase its annual tax levy. (See TAX INFORMATION - Tax Levy Limit Law herein.) Statutory Procedure In general, the State Legislature has authorized the power and procedure for the Village to borrow and incur indebtedness subject, of course, to the constitutional provisions set forth above. The power to spend money, however, generally derives from other law, including the Village Law and the General Municipal Law. Pursuant to the Local Finance Law, the Village authorizes the incurrence of indebtedness, including bonds and bond anticipation notes issued in anticipation of such bonds, by the adoption of a resolution, approved by at least two-thirds of the members of the Village Board, the finance board of the Village. Certain such resolutions may be subject to permissive referendum, or may be submitted to the Village voters at the discretion of the Village Board, in which case the required vote of the Board is three-fifths. The Local Finance Law also provides for a twenty-day statute of limitations after publication of a bond resolution, together with a statutory notice which, in effect, estops thereafter legal challenges to the validity of obligations authorized by such bond resolution except for alleged constitutional violations. The Village is in compliance with such estoppel procedure with respect to the bond resolution(s) adopted in connection with the issuance of the Bonds. Each bond resolution usually authorizes the construction, acquisition or installation of the object or purpose to be financed, sets forth the plan of financing and specifies the maximum maturity of the bonds subject to the legal (Constitution, Local Finance Law and case law) restrictions relating to the period of probable usefulness with respect thereto. Each bond resolution also authorizes the issuance of bond anticipation notes prior to the issuance of serial bonds. Statutory law in New York permits notes to be renewed each year provided that principal is amortized and provided that such renewals do not (with certain exceptions) extend more than five years beyond the original date of borrowing. However, notes issued in anticipation of the sale of serial bonds for assessable improvements are not subject to such five year limit and may be renewed subject to annual reductions of principal for the entire period of probable usefulness of the purpose for which such notes were originally issued. (See Payment and Maturity under VILLAGE INDEBTEDNESS - Constitutional Requirements ). In addition, under each bond resolution, the Village Board may delegate, and has delegated, power to issue and sell bonds and notes, to the Village Treasurer, the chief fiscal officer of the Village. In general, the Local Finance Law contains similar provisions providing the Village with power to issue general obligation revenue anticipation notes, tax anticipation notes, capital notes, budget notes and deficiency notes. 19

20 Debt Outstanding End of Fiscal Year As of May 31st Bonds $6,675,000 $6,826,000 $5,530,000 $4,185,000 $7,575,000 Bond Anticipation Notes 450, ,850,000 1,000,000 Total Debt Outstanding $7,125,000 $6,826,000 $5,530,000 $6,035,000 $8,575,000 Source: Village Audits Details of Outstanding Indebtedness The following table sets forth the indebtedness of the Village as of September 28, 2018: Maturity Amount Bonds 2018 to 2026 General Fund Debt $4,818,281 Water Fund Debt 1,166,719 Total Bonds 5,985,000 Bond Anticipation Notes Bond Anticipation Notes Series A November 1, ,375,000 (1) Bond Anticipation Notes Series B November 1, ,575,000 (1) Total BANS 3,950,000 Installment Purchase Debt Two Rosenbauer Pumpers November 15, ,552 Total Installment Purchase Debt 993,552 Total Debt Outstanding $10,928,552 (1) To be refunded with the proceeds of the Bonds along with available village funds. Source: Village of Farmingdale Computation of Debt Limit Fiscal Year Assessed Valuation State Full Valuation Ending of Taxable Equalization of Taxable May 31st: Real Estate Rate Real Estate 2018 $971,012, % $971,012, ,291, % 969,291, ,437, % 892,437, ,047, % 891,047, ,245, % 900,245,647 Total five year valuation 4,624,034,268 Five year average full valuation 924,806,854 Debt Limit - 7% of average five year full valuation $64,736,479 Source: NYS Comptroller s Office and NYS Office of Real Property Management 20

21 Debt Statement Summary Summary of Debt Limit, Total New Indebtedness and Net Debt-Contracting Margin as of September 28, 2018: Debt Contracting Limitation: $64,736,479 Gross Direct Indebtedness Bonds: General Fund 4,818,281 Water Fund 1,166,719 Total Bonds 5,985,000 Bond Anticipation Notes: General Fund 3,625,000 Water Fund 325,000 Total Bond Anticipation Notes 3,950,000 Installment Purchase Debt: General Fund 993,552 Total Installment Purchase debt 993,552 Total Gross Indebtedness 10,928,552 Less Exclusions: Appropriations - Non-excluded debt: General Fund: Bonds 450,000 BANS 60,000 Installment Purchase Debt 86,313 Total Appropriations 596,313 Water Debt: Bonds 1,166,719 BANS 325,000 Total Excludable Debt 1,491,719 Total Exclusions: 2,088,032 Total Net Direct Indebtedness $8,840,520 Net Debt Contracting Margin $55,895,959 Percent of Debt-Contracting Power Exhausted 13.66% The issuance of the Bonds will increase the Total Net Direct Indebtedness of the Village by $3,250,000 and exhaust an additional 5.02% of the Village s Debt-Contracting Power. Estimated Overlapping Indebtedness In addition to the Village, the following political subdivisions have the power to issue bonds and to levy taxes or cause taxes to be levied on taxable real property in the Village. 21

22 Date of Outstanding Net % Within Applicable Net Unit Report Indebtedness Exclusions 1 Indebtedness Village Indebtedness County of Nassau 3/31/18 $3,910,372,000 $656,408,000 $3,253,964, % $15,944,424 Town of Oyster Bay 5/3/18 699,255,369 93,397, ,858, % 11,087,208 Farmingdale UFSD 6/30/17 8,230, ,230, % 1,556,293 Total $28,587,924 (1) Pursuant to applicable constitutional and statutory provisions this indebtedness is deductible from gross indebtedness for debt limit purposes. Source: Annual Reports of the respective units for the most recently available fiscal year from the office of the NYS Comptroller or more recently published Official Statements. Capital Project Plans After the issuance of the Bonds, the Village will have the following authorized and unissued debt: Date Amount Amount Amount Purposes Authorized Authorized Issued Unissued Acquisition of two fire trucks September 5, ,000,000 1,000,000 1,000,000 (1) Construction of improvements to the Village water system May 4, ,195,000 1,525,000 1,670,000 Various capital improvements in and for the Village May 7, , , ,000 Construction of improvements to the existing DPW garage August 6, , ,000 (2) Construction of a new DPW garage August 6, ,500, ,500,000 (2) Construction and installation of a new water tank August 6, ,200, ,200,000 (2) $9,845,000 $2,875,000 $7,970,000 (1) The Village entered into a lease purchase agreement for the acquisition of two fire trucks and therefore does not intend to issue debt pursuant to this resolution. (2) The Village expects to issued debt under these resolutions in Spring Bonded Debt Service The below table reflects the debt service requirements to maturity on the Village s outstanding general obligation bonds as of September 28, 2018 (Figures are rounded). Fiscal Year Ended May 31st: Principal Interest Total Principal and Interest 2019 $450,000 $69,233 $519, ,000 99, , ,000 83, , ,000 69, , ,000 54, , ,000 39, , ,000 26, , ,000 15, , ,000 5, ,100 TOTALS $5,985,000 $462,823 $6,447,823 22

23 REMEDIES UPON DEFAULT Neither the Bonds, nor the proceedings with respect thereto, specifically provide any remedies which would be available to owners of the Bonds should the Village default in the payment of principal of or interest on the Bonds, nor do they contain any provisions for the appointment of a trustee to enforce the interests of the owners of the Bonds upon the occurrence of any such default. Each Bond is a general obligation contract between the Village and the owners for which the faith and credit of the Village are pledged and while remedies for enforcement of payment are not expressly included in the Village s contract with such owners, any permanent repeal by statute or constitutional amendment of a bond or note holder s remedial right to judicial enforcement of the contract should, in the opinion of Bond Counsel, be held unconstitutional. Upon default in the payment of principal of or interest on the Bonds, at the suit of the owner, a Court has the power, in proper and appropriate proceedings, to render judgment against the Village. The present statute limits interest on the amount adjudged due to contract creditors to nine per centum per annum from the date due to the date of payment. As a general rule, property and funds of a municipal corporation serving the public welfare and interest have not been judicially subjected to execution or attachment to satisfy a judgment. A Court also has the power, in proper and appropriate proceedings, to order payment of a judgment on such Bonds from funds lawfully available therefor or, in the absence thereof, to order the Village to take all lawful action to obtain the same, including the raising of the required amount in the next annual tax levy. In exercising its discretion as to whether to issue such an order, the Court may take into account all relevant factors, including the current operating needs of the Village and the availability and adequacy of other remedies. Upon any default in the payment of the principal of or interest on a Bond, the owner of such Bond could, among other remedies, seek to obtain a writ of mandamus from a Court ordering the governing body of the Village to assess, levy and collect an ad valorem tax, upon all taxable property of the Village subject to taxation by the Village, sufficient to pay the principal of and interest on the Bonds as the same shall come due and payable (and interest from the due date to date of payment) and otherwise to observe the covenants contained in the Bonds and the proceedings with respect thereto all of which are included in the contract with the owners of the Bonds. The mandamus remedy, however, may be impracticable and difficult to enforce. Further, the right to enforce payment of the principal of or interest on the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws and equitable principles, which may limit the specific enforcement of certain remedies. In 1976, the New York Court of Appeals, the State s highest court, held in Flushing National Bank v. Municipal Assistance Corporation for the City of New York, 40 N.Y.2d 731 (1976), that the New York State legislation purporting to postpone the payment of debt service on New York City obligations was an unconstitutional moratorium in violation of the New York State constitutional faith and credit mandate included in all municipal debt obligations. While that case can be viewed as a precedent for protecting the remedies of holders of bonds or notes of the Village, there can be no assurance as to what a Court may determine with respect to future events, including financial crises as they may occur in the State and in municipalities of the State, that require the exercise by the State of its emergency and police powers to assure the continuation of essential public services. (See also, Flushing National Bank v. Municipal Assistance Corporation for the City of New York, 40 N.Y.2d 1088 (1976), where the Court of Appeals described the pledge as a direct Constitutional mandate.) As a result of the Court of Appeals decision, the constitutionality of that portion of Title 6-A of Article 2 of the Local Finance Law enacted at the 1975 Extraordinary Session of the State legislature authorizing any county, city, town or village with respect to which the State has declared a financial emergency to petition the State Supreme Court to stay the enforcement against such municipality of any claim for payment relating to any contract, debt or obligation of the municipality during the emergency period, is subject to doubt. In any event, no such emergency has been declared with respect to the Village. Pursuant to Article VIII, Section 2 of the State Constitution, the Village is required to provide an annual appropriation of monies for the payment of due and payable principal of and interest on indebtedness. Specifically this constitutional provision states: If at any time the respective appropriating authorities shall fail to make such appropriations, a sufficient sum shall be set apart from the first revenues thereafter received and shall be applied to such purposes. The fiscal officer of any county, city, town, village or school district may be required to set aside and apply such revenues as aforesaid at the suit of any holder of obligations issued for any such indebtedness. This constitutes a specific non-exclusive constitutional remedy against a defaulting municipality or school district; however, it does not apply in a context in which monies have been appropriated for debt service but the appropriating authorities decline to use such monies to pay debt service. However, Article VIII, Section 2 of the Constitution of the State also provides that the fiscal officer of any county, city, town, village or school district may be required to set apart and apply such revenues at the suit of any holder of any obligations of indebtedness issued with the pledge of the faith of the credit of such political subdivision. In Quirk v. Municipal Assistance Corp., 41 N.Y.2d 644 (1977), the Court of Appeals described this as a first lien on revenues, but one that does not give holders a right to any particular revenues. It should thus be noted that the pledge of the faith and credit of a political subdivision in the State is a pledge of an issuer of a general obligation bond or note to use its general revenue powers, including, but not limited to, its property tax levy, to pay debt service on such obligations, but that such pledge may or may not be interpreted by a court of competent jurisdiction to include a constitutional or statutory lien upon any particular revenues. The Constitutional provision providing for first revenue set asides does not apply to tax anticipation notes, revenue 23

24 anticipation notes or bond anticipation notes. While the courts in the State have historically been protective of the rights of holders of general obligation debt of political subdivisions, it is not possible to predict what a future court might hold. In prior years, certain events and legislation affecting a holder s remedies upon default have resulted in litigation. While courts of final jurisdiction have generally upheld and sustained the rights of holders of bonds or notes, such courts might hold that future events, including a financial crisis as such may occur in the State or in political subdivisions of the State, may require the exercise by the State or its political subdivisions of emergency and police powers to assure the continuation of essential public services prior to the payment of debt service. MUNICIPAL BANKRUPTCY The undertakings of the Village should be considered with reference, specifically, to Chapter IX of the Bankruptcy Act, 11 U.S.C. 401, et seq., as amended ( Chapter IX ) and, in general, to other bankruptcy laws affecting creditors rights and municipalities. Chapter IX permits any political subdivision, public agency or instrumentality that is insolvent or unable to meet its debts (i) to file a petition in a Court of Bankruptcy for the purpose of effecting a plan to adjust its debts provided such entity is authorized to do so by applicable state law; (ii) directs such a petitioner to file with the court a list of a petitioner s creditors; (iii) provides that a petition filed under such chapter shall operate as a stay of the commencement or continuation of any judicial or other proceeding against the petitioner; (iv) grants priority to debt owed for services or material actually provided within three (3) months of the filing of the petition; (v) directs a petitioner to file a plan for the adjustment of its debts; and (vi) provides that the plan must be accepted in writing by or on behalf of creditors holding at least two-thirds (2/3) in amount or more than one-half (1/2) in number of the listed creditors. Bankruptcy proceedings by the Village could have adverse effects on holders of bonds or notes including (a) delay in the enforcement of their remedies, (b) subordination of their claims to those supplying goods and services to the Village after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings and (c) imposition without their consent of a reorganization plan reducing or delaying payment of the Bonds. The Bankruptcy Code contains provisions intended to ensure that, in any reorganization plan not accepted by at least a majority of a class of creditors such as the holders of general obligation bonds, such creditors will have the benefit of their original claim or the indubitable equivalent. The effect of these and other provisions of the Bankruptcy Code cannot be predicted and may be significantly affected by judicial interpretation. Accordingly, enforceability of the rights and remedies of the owners of the Bonds, and the obligations incurred by the Village, may become subject to Chapter IX and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor s rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against public agencies in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Bonds to judicial discretion, interpretation and of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. The State has consented (see Title 6-A of the Local Finance Law) that any municipality in the State may file a petition with any United States district court or court of bankruptcy under any provision of the laws of the United States, now or hereafter in effect for the composition or adjustment of municipal indebtedness. However, it is noted that there is no record of any recent filings by a New York municipality. Since the New York City fiscal crisis in 1975, the State has legislated a finance control or review board and assistance corporations to monitor and restructure finance matters in addition to New York City, for the Cities of Yonkers, Troy and Buffalo and for the Counties of Nassau and Erie. Similar active intervention pursuant to State legislation to relieve fiscal stress for the Village in the future cannot be assured. No current state law purports to create any priority for holders of the Bonds should the Village be under the jurisdiction of any court, pursuant to the laws of the United States, now or hereafter in effect, for the composition or adjustment of municipal indebtedness. The above references to the Bankruptcy Act are not to be construed as an indication that the Village is currently considering or expects to resort to the provisions of the Bankruptcy Act. 24

25 Financial Control Boards Pursuant to Article IX Section 2(b)(2) of the State Constitution, any municipality in the State may request the intervention of the State in its property, affairs and government by a two-thirds vote of the total membership of its legislative body or on request of its chief executive officer concurred in by a majority of such membership. This has resulted in the adoption of special acts for the establishment of public benefit corporations with varying degrees of authority to control the finances (including debt issuance) of the Cities of Buffalo, Troy and Yonkers and the County of Nassau. The specific authority, powers and composition of the financial control boards established by these acts varies based upon circumstances and needs. Generally, the State legislature has granted such boards the power to approve or disapprove budget and financial plans and to issue debt on behalf of the municipality, as well as to impose wage and/or hiring freezes and in certain cases approve or disapprove collective bargaining agreements. Implementation is generally left to the discretion of the board of the public benefit corporation. Such a State financial control board was first established for New York City in In addition, upon the issuance of a certificate of necessity of the Governor reciting facts which in the judgment of the Governor constitute an emergency requiring enactment of such laws, with the concurrences of two-thirds of the members elected in each house of the State legislature, the State is authorized to intervene in the property, affairs and governments of local government units. This occurred in the case of the County of Erie in The authority of the State to intervene in the financial affairs of a local government is further supported by Article VIII, Section 12 of the Constitution which declares it to be the duty of the State legislature to restrict, subject to other provisions of the Constitution, the power of taxation, assessment, borrowing money and contracting indebtedness and loaning the credit of counties, cities, towns and villages so as to prevent abuses in taxation and assessment and in contracting indebtedness by them. In 2013, the State established a new state advisory board to assist counties, cities, towns and villages in financial distress. The Financial Restructuring Board for Local Governments (the FRB ), is authorized to conduct a comprehensive review of the finances and operations of any such municipality deemed by the FRB to be fiscally eligible for its services upon request by resolution of the municipal legislative body and concurrence of its chief executive. The FRB is authorized to make recommendations for, but cannot compel improvement of fiscal stability, management and delivery of municipal services, including shared services opportunities and is authorized to offer grants and/or loans of up to $5,000,000 through a Local Government Performance and Efficiency Program to undertake certain recommendations. If a municipality agrees to undertake the FRB recommendations, it will be automatically bound to fulfill the terms in order to receive the aid. The FRB is also authorized to serve as an alternative arbitration panel for binding arbitration. Although from time to time there have been proposals for the creation of a statewide financial control board with broad authority over local governments in the State, the FRB does not have emergency financial control board powers to intervene in the finances and operations of entities such as the public benefit corporations established by special acts as described above. Several municipalities in the State are presently working with the FRB. The Village has not applied to the FRB and does not reasonably anticipate submission of a request to the FRB for a comprehensive review of its finances and operations. School districts and fire districts are not eligible for FRB assistance. No Past Due Debt No principal or interest payment on Village indebtedness is past due. The Village has never defaulted in the payment of the principal of and/or interest on any indebtedness. LITIGATION The Village is subject to a number of lawsuits in the ordinary conduct of its affairs. The Village does not believe, however, that such suits, individually or in the aggregate, are likely to have a material adverse effect on the financial condition of the Village. Numerous tax certiorari claims for refunds of prior year s property taxes are currently pending. The Village s tax certiorari counsel is of the opinion that the most significant cases against the Village have been resolved and the currently pending cases will have marginal impact on the Village s budget. (See TAX INFORMATION - Tax Certiorari Matters herein.) 25

26 OFFICE OF THE NEW YORK STATE COMPTROLLER S FISCAL STRESS MONITORING SYSTEM The New York State Comptroller has reported that New York State s municipalities and school districts are facing significant fiscal challenges. As a result, the Office of the State Comptroller has developed a Fiscal Stress Monitoring System, ( FSMS ), to provide independent, objective and quantifiable information to municipal and school district officials and the general public regarding the various levels of fiscal stress, under which the State s municipalities and school districts are operating. The fiscal stress scores are calculated using financial data that is filed in annual update documents (AUDs) by each local government and in annual financial reports (ST-3s) for each school district. Using financial indicators that include yearend fund balances, cash positions, patterns of operating deficits and types of debt issuance, the system creates an overall fiscal stress score. The maximum fiscal stress score which can be assigned is 100%. Classifications are based on the following scores between: 100% to 65% - significant fiscal stress, 64.9% to 55% - moderate fiscal stress, 54.9% to 45% - susceptible fiscal stress, and 44.9% to 0% - no designation. A no designation should not be interpreted to imply that the entity is completely free of fiscal stress conditions. Rather, the entity s financial information, when objectively scored according to the FSMS criteria, does not generate sufficient points to place them in one of the three established stress categories. (See FINANCIAL INFORMATION - New York State Comptroller s Office Fiscal Stress Designation herein.) A copy of the Fiscal Stress Monitoring System Report is available on the website of the Office of the New York MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE The Village s credit rating could be affected by circumstances beyond the Village s control. Economic conditions such as the rate of unemployment and inflation, termination of commercial operations by corporate taxpayers and employers, as well as natural catastrophes, could adversely affect the assessed valuation of Village property and its ability to maintain fund balances and other statistical indices commensurate with its current credit rating. As a consequence, a decline in the Village s credit rating could adversely affect the market value of the Bonds. If and when an owner of any of the Bonds should elect to sell a Bond prior to its maturity, there can be no assurance that a market will have been established, maintained and continue in existence for the purchase and sale of any of those Bonds. The market value of the Bonds is dependent upon the ability of holder to potentially incur a capital loss if such Bond is sold prior to its maturity. There can be no assurance that adverse events including, for example, the seeking by another municipality in the State or elsewhere of remedies pursuant to the Federal Bankruptcy Act or otherwise, will not occur which might affect the market price of and the market for the Bonds. In particular, if a significant default or other financial crisis should occur in the affairs of the State or any of its municipalities, public authorities or other political subdivisions thereby possibly further impairing the acceptability of obligations issued by those entities, both the ability of the Village to arrange for additional borrowing(s) as well as the market for and market value of outstanding debt obligations, including the Bonds, could be adversely affected. The Village is dependent in part upon financial assistance from the State in the form of State aid as well as grants and loans to be received ( State Aid ). The Village s receipt of State aid may be delayed as a result of the State s failure to adopt its budget timely and/or to appropriate State Aid to municipalities and school districts. Should the Village fail to receive all or a portion of the amounts of State Aid expected to be received from the State in the amounts and at the times anticipated, occasioned by a delay in the payment of such moneys or by a reduction in State Aid or its elimination, the Village is authorized pursuant to the Local Finance Law ( LFL ) to provide operating funds by borrowing in anticipation of the receipt of such uncollected State Aid, however, there can be no assurance that, in such event, the Village will have market access for any such borrowing on a cost effective basis. The elimination of or any substantial reduction in State Aid would likely have a materially adverse effect upon the Village requiring either a counterbalancing increase in revenues from other sources to the extent available or a curtailment of expenditures. (See also FINANCIAL INFORMATION - State and Federal Aid herein.) Future amendments to applicable statutes whether enacted by the State or the United States of America affecting the treatment of interest paid on municipal obligations, including the Bonds, for income taxation purposes could have an adverse effect on the market value of the Bonds (see TAX MATTERS herein). The enactment of the Tax Levy Limit Law, which imposes a tax levy limitation upon municipalities, school districts and fire districts in the State, including the Village, without providing exclusion for debt service on obligations issued by 26

27 municipalities and fire districts, including the Village, may affect the market price and/or marketability for the Bonds. (See TAX INFORMATION - Tax Levy Limit Law herein.) Federal or State legislation imposing new or increased mandatory expenditures by municipalities, school districts and fire districts in the State, including the Village, could impair the financial condition of such entities, including the Village, and the ability of such entities, including the Village, to pay debt service on the Bonds. Opinion of Bond Counsel TAX MATTERS In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the Village, under existing statutes and court decisions and assuming continuing compliance with certain tax certifications described herein, (i) interest on the Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the Code ), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed for taxable years beginning prior to January 1, The Tax Certificate of the Village (the Tax Certificate ), which will be delivered concurrently with the delivery of the Bonds will contain provisions and procedures relating to compliance with applicable requirements of the Code. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Village in connection with the Bonds, and Bond Counsel has assumed compliance by the Village with certain ongoing provisions and procedures set forth in the Tax Certificate relating to compliance with applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. In addition, in the opinion of Bond Counsel to the Village, under existing statutes, interest on the Bonds is exempt from personal income taxes of New York State and its political subdivisions, including The City of New York. Bond Counsel expresses no opinion as to any other federal, state or local tax consequences arising with respect to the Bonds, or the ownership or disposition thereof, except as stated above. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update, revise or supplement its opinion to reflect any action thereafter taken or not taken, any fact or circumstance that may thereafter come to its attention, any change in law or interpretation thereof that may thereafter occur, or for any other reason. Bond Counsel expresses no opinion as to the consequence of any of the events described in the preceding sentence or the likelihood of their occurrence. In addition, Bond Counsel expresses no opinion on the effect of any action taken or not taken in reliance upon an opinion of other counsel regarding federal, state or local tax matters, including, without limitation, exclusion from gross income for federal income tax purposes of interest on the Bonds. Certain Ongoing Federal Tax Requirements and Certifications The Code establishes certain ongoing requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Bonds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the federal government. Noncompliance with such requirements may cause interest on the Bonds to become included in gross income for f ederal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The Village, in executing the Tax Certificate, will certify to the effect that the Village will comply with the provisions and procedures set forth therein and that it will do and perform all acts and things necessary or desirable to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral federal income tax matters with respect to the Bonds. It does not purport to address all aspects of federal taxation that may be relevant to a particular owner of a Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Bonds. Prospective owners of the Bonds should be aware that the ownership of such obligations may result in collateral federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social 27

28 Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for federal income tax purposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount Original issue discount ( OID ) is the excess of the sum of all amounts payable at the stated maturity of a Bond (excluding certain qualified stated interest that is unconditionally payable at least annually at prescribed rates) over the issue price of that maturity. In general, the issue price of a maturity (a bond with the same maturity date, interest rate, and credit terms) means the first price at which at least 10 percent of such maturity was sold to the public, i.e., a purchaser who is not, directly or indirectly, a signatory to a written contract to participate in the initial sale of the Bonds. In general, the issue price for each maturity of Bonds is expected to be the initial public offering price set forth in this Official Statement. Bond Counsel further is of the opinion that, for any Bond having OID (a Discount Bond ), OID that has accrued and is properly allocable to the owners of the Discount Bonds under Section 1288 of the Code is excludable from gross income for Federal income tax purposes to the same extent as other interest on the Bonds. In general, under Section 1288 of the Code, OID on a Discount Bond accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that Discount Bond. An owner s adjusted basis in a Discount Bond is increased by accrued OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Discount Bond. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been received for purposes of determining various other tax consequences of owning a Discount Bond even though there will not be a corresponding cash payment. Owners of Discount Bonds should consult their own tax advisors with respect to the treatment of original issue discount for federal income tax purposes, including various special rules relating thereto, and the state and local tax consequences of acquiring, holding, and disposing of Discount Bonds. Bond Premium In general, if an owner acquires a bond for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the bond after the acquisition date (excluding certain qualified stated interest that is unconditionally payable at least annually at prescribed rates), that premium constitutes bond premium on that bond (a Premium Bond ). In general, under Section 171 of the Code, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, based on the owner s yield over the remaining term of the Premium Bond, determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner s regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner s original acquisition cost. Owners of any Premium Bond should consult their own tax advisors regarding the treatment of bond premium for federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange, or other disposition of Premium Bonds. Information Reporting and Backup Withholding Information reporting requirements apply to interest on tax-exempt obligations, including the Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payor with, a Form W-9, Request for Taxpayer Identification Number and Certification, or if the recipient is one of a limited class of exempt recipients. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to backup withholding, which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a payor generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient. If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Bonds from gross income for federal income tax purposes. 28

29 Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner s Federal income tax once the required information is furnished to the Internal Revenue Service. Miscellaneous Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under federal or state law or otherwise prevent beneficial owners of the Bonds from realizing the full current benefit of the tax status of such interest. In addition, such legislation or actions (whether currently proposed, proposed in the future, or enacted) and such decisions could affect the market price or marketability of the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters. BOND RATING S and P Global Ratings ( S & P ) has assigned its AA rating and stable outlook to the Bonds and has affirmed its AA rating, with a stable outlook on Village s existing general obligation debt. An explanation of the significance of such rating, should be obtained from S and P Global Ratings, 55 Water Street, New York, New York (212) Moody s Investors Service ( Moody s ) assigned a credit rating of Aa3 on the outstanding indebtedness of the Village. The Village has not applied to Moody s for a credit rating on the Bonds. An explanation of the significance of such rating should be obtained from Moody s Investors Services, Inc., 7 World Trade Center, New York, New York (212) The rating(s) reflect only the view of such rating agencies. There can be no assurance that such rating will not be changed or withdrawn if, in the judgment of such rating agency, circumstances so warrant. Any change or withdrawal of such rating may have an adverse effect on the market price of the Bonds or the availability of a secondary market for the Bonds. DISCLOSURE UNDERTAKING In accordance with the provisions of Rule 15c2-12, as the same may be amended or officially interpreted from time to time (the Rule ), promulgated by the Securities and Exchange Commission (the Commission ) pursuant to the Securities Exchange Act of 1934, at the time of delivery of the Bonds, the Village will provide an executed copy of its Undertaking to Provide Notices of Events, substantially as set forth in Appendix C, hereto. Compliance History Various municipal bond insurance companies including, Assured Guarranty Corp., Financial Security Assurance, Inc., AMBAC Assurance Corporation, MBIA Insurance Corporation, XL Capital Assurance, Financial Guaranty Insurance Corporation, and CIFG Assurance North America, some of whom have insured bonds issue by the Village, have had a variety of rating actions taken by Moody s Investors Service and Standard and Poor s over the past five years. Due to wide spread knowledge of these rating actions, material event notices were not historically filed by the Village in each instance. The Village filed event notices for those insurers who insured Village bonds on EMMA on August 20, With regards to Village rating changes, the Village did not file a rating change notice in connection with its April 7, 2014 credit rating upgrade by Moody s Investors Service and the recalibration of its credit rating by Moody s Investors Service on April 16, The Village filed an event notice with respect to these rating actions on EMMA on August 20, With regards to the Village s filing(s) of certain annual financial information and audited financial statements, the Village failed to file its unaudited financial statements (due to the unavailability of audited financial statements) in fiscal years ; however, the Village s audited financial statements for fiscal years were filed in a timely manner. The Village s annual financial and operating data was filed late for fiscal years 2008 and 2009 (3-days late). The Village filed an event notice with respect to this on EMMA on August 20,

30 LEGAL MATTERS Legal matters incident to the authorization, issuance and sale of the Bonds will be subject to the final approving opinion of the law firm of Hawkins Delafield & Wood LLP, Bond Counsel to the Village with respect to the Bonds, substantially in the form as set forth in Appendix D hereto. FINANCIAL ADVISOR Liberty Capital Services, LLC, Garden City, New York (the Financial Advisor ) has served as the independent Financial Advisor to the Village in connection with this transaction. The Financial Advisor is a financial advisory and consulting firm and is not engaged in the business of public accounting, underwriting, marketing or trading of municipal securities or any other negotiated financial instrument(s) and therefore will not participate in the underwriting of the Bonds. The Financial Advisor has not been engaged nor has audited, authenticated or otherwise verified the information provided by the Village, information available to the Village or other information from independent sources believed to be reliable and available to the Village and set forth in this Official Statement. No guarantee, warranty, or other representation is made by the Financial Advisor respecting the accuracy and completeness of information or any other matter related to such information and this Official Statement. MISCELLANEOUS So far as any statements made in this Official Statement involve matters or estimates whether or not expressly stated, they are set forth as such and not as representations of fact, and no representation is made that any of the statements will be realized. Neither this Official Statement nor any other statement which may have been made verbally or in writing is to be construed as a contract with the holders of the Bonds. This Official Statement has been duly executed and delivered by the Village Treasurer of the Village of Farmingdale. Additional information may be obtained from the office of the Village Treasurer (516) or the Village s financial adviser, Liberty Capital Services, LLC Franklin Avenue (suite 335), Garden City, NY 11530, telephone number: (516) Dated: Farmingdale, New York October 1, 2018 /s/brian Harty Village Treasurer 30

31 Village of Farmingdale APPENDIX A Revenues, Expenditures and Fund Balances - General Fund Year Ended May 31: REVENUES Real Property Taxes and Tax Items $3,728,827 $3,682,560 $3,721,644 $3,883,550 $3,782,971 Non-Property Tax Items 391, , , , ,133 Departmental Income 318, , , , ,546 Intergovernmental Charges 67,266 70,131 72,677 79,928 86,847 Use of Money and Property 267, , , , ,583 Licenses and Permits 19,591 34, , , ,006 Fines and Forfeitures 483, , , , ,700 Sale of Property and Compensation for Loss 31,427 23,424 19,305 17,633 9,518 State Aid 200, , , , ,278 Federal Aid 179, ,941 16,649 19,956 0 Miscellaneous 102,986 36,546 48,452 5,106 12,359 Total Revenues 5,790,051 5,996,762 5,769,707 6,019,115 6,090,941 EXPENDITURES General Government Support 1,035,553 1,117,167 1,152,468 1,084,181 1,244,396 Public Safety 877, , , , ,016 Health Transportation 841, , , ,440 1,019,320 Economic Assistance and Opportunity 17,572 24,498 29,202 28,901 34,327 Culture & Recreation 122,935 98,545 97, , ,268 Home & Community Services 163, , ,520 99, ,879 Employee Benefits 1,233,413 1,251,576 1,284,773 1,285,774 1,212,274 Debt Service 1,358,955 1,321,444 1,461,576 1,446,639 1,426,116 Total Expenditures 5,650,409 5,626,930 5,949,135 5,585,122 5,869,596 Excess of Revenues over (under) Expenditures 139, ,832 (179,428) 433, ,345 Other Financing Sources (Uses): Operating Transfers In Operating Transfers Out (9,453) (610,450) Proceeds from BANs 150, Proceeds from issuance of serial bond 0 150, Principal paid on BAN refinanced to serial bonds 0 (150,000) Premiums on obligations 0 41, ,000 Total Other Financing Sources (Uses) 140,547 41, (510,450) Excess of Revenues and Other Sources Over (Under) Expenditures and Other Uses 280, ,594 (179,428) 433,993 (289,105) Fund Balance Beginning of Year 2,447,847 2,728,036 3,139,630 2,960,202 3,394,195 Prior Period Adjustment ,507,847 Fund Balance End of Year $2,728,036 $3,139,630 $2,960,202 $3,394,195 $4,612,937 Source: Audited financial statements of the Village of Farmingdale. Summary itself not audited.

32 Village of Farmingdale APPENDIX A-1 Comparison of Budget and Actual Results - General Fund (Most Recently Available Completed Fiscal Year and Current Budget) Year Ended May 31: Original Adopted Adopted REVENUES Budget Actual Budget Budget Real Property Taxes and Tax Items $3,868,361 $3,782,971 $3,910,883 $4,001,161 Non-Property Tax Items 412, , , ,000 Departmental Income 493, , , ,000 Economic Assistance and Opportunity 0 0 7,000 7,000 Intergovernmental Charges 81,990 86,847 88,000 95,000 Use of Money and Property 201, , , ,290 Licenses and Permits 104, , , ,000 Fines and Forfeitures 406, , , ,000 Sale of Property and Compensation for Loss 1,000 9, State Sources 182, , , ,700 Federal Aid Other 5,000 12,359 2,000 2,000 Total Revenues 5,757,709 6,090,941 5,904,524 6,074,651 Appropriated Fund Balance 173, , ,215 Total Revenues and Appropriated Fund Balance 5,930,846 6,090,941 6,009,310 6,300,866 EXPENDITURES General Governmental Support 1,232,309 1,244,396 1,317,070 1,346,050 Public Safety 751, , , ,375 Health Transportation 846,911 1,019,320 1,013, ,350 Economic Assistance and Opportunity 37,300 34,327 43,050 41,050 Culture & Recreation 91, , , ,900 Home & Community Service 132, , , ,000 Employee Benefits 1,413,034 1,212,274 1,550,560 1,632,385 Debt Service 1,426,117 1,426,116 1,034,053 1,386,756 Total Expenditures 5,930,846 5,869,596 6,009,310 6,300,866 Excess of Revenues Over (under) Expenditures $0 221,345 $0 $0 Other Financing Sources (Uses): Premiums on obligations 100,000 Operating Transfers Out (610,450) Total Other Financing Sources (Uses) (510,450) Excess of Revenues and Other Sources Over (Under) Expenditures and Other Uses ($289,105) Source: Audited financial statements of the Village of Farmingdale. Summary itself not audited.

33 Village of Farmingdale APPENDIX A-2 Balance Sheets - General Fund As of May 31: ASSETS Cash and Investments $2,756,763 $3,378,101 $3,034,992 $3,323,558 $1,236,236 Restricted Cash 147, ,374 87, ,724 1,731,737 Service award program asset investments ,554,209 Property Tax Receivable 15,796 44, ,259 93, ,256 Accounts Receivable 91,744 83, ,880 77,411 75,070 Federal and State Aid Receivable 88,732 22,047 19,173 23,925 74,056 Due from Other Funds 173,298 27,939 85, , ,767 Due from Trust/Fiduciary Funds ,969 Prepaid Expenses 1, ,600 1,600 0 Other Assets TOTAL ASSETS $3,275,692 $3,678,698 $3,583,079 $4,026,926 $5,530,300 LIABILITIES Accounts Payable and Accrued Expenses $172,959 $128,865 $264,503 $272,539 $141,553 Due to Other Funds 6, ,783 Due to Other Governments 2,072 2,279 2, Due to Fiduciary Funds Payments Received in Advance 12,575 8, Unearned Revenue ,811 Deferred Revenues 353, , , , ,052 TOTAL LIABILITIES AND DEFERRED REVENUES 547, , , , ,363 FUND EQUITY Fund Balances: Nonspendable 1, ,600 1,600 0 Restricted 147, ,374 87, ,724 1,731,737 Assigned 660, , , ,982 1,009,243 Unassigned 1,918,577 2,235,404 2,174,112 2,575,889 1,871,957 TOTAL FUND EQUITY (DEFICIT) 2,728,036 3,139,630 2,960,202 3,394,195 4,612,937 TOTAL LIABILITIES, DEFERRED REVENUE AND FUND EQUITY $3,275,692 $3,678,698 $3,583,079 $4,026,926 $5,530,300 Source: Audited financial statements of the Village of Farmingdale Summary itself not audited.

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35 APPENDIX B INCORPORATED VILLAGE OF FARMINGDALE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION AS OF MAY 31, 2017 TOGETHER WITH AUDITOR'S REPORTS Such Financial Statements and Supplementary Information together with Auditors Reports were prepared as of the date thereof and have not been reviewed and/or updated in connection with the preparation and dissemination of this Official Statement

36 INCORPORATED VILLAGE OF FARMINGDALE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION AS OF AND FOR THE YEAR ENDED MAY 31, 2017 TOGETHER WITH AUDITOR'S REPORTS

37 INCORPORATED VILLAGE OF FARMINGDALE TABLE OF CONTENTS PAGE(S) Independent Auditor's Report Required Supplementary Information: Management's Discussion And Analysis ("MD&A") Basic Financial Statements: Village-Wide Financial Statements - Statement Of Net Position Statement Of Activities Fund Financial Statements - Balance Sheet - Governmental Funds Reconciliation Of The Governmental Funds Balance Sheet To The Statement Of Net Position Fund Financial Statements - Statement Of Revenues, Expenditures And Changes In Fund Balance - Governmental Funds Reconciliation Of The Governmental Funds Statement Of Revenues, Expenditures And Changes In Fund Balance To The Statement Of Activities And Changes In Net Position Fund Financial Statements - Statement Of Fiduciary Net Position - Fiduciary Funds Notes To Financial Statements Required Supplementary Information Other Than MD&A: Schedule Of Revenues, Expenditures And Changes In Fund Balance - Budget And Actual: General Fund Water Fund Schedule Of Funding Progress For The Retiree Health Plan Schedule Of Village's Proportionate Share Of The Net Pension Liability Schedule Of Village Pension Contributions Independent Auditor's Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards

38 Nawrocki Smith CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT To the Board of Trustees of the Incorporated Village of Farmingdale: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and fiduciary funds of the Incorporated Village of Farmingdale (the "Village"), as of and for the year ended May 31, 2017, and the related notes to financial statements, which collectively comprise the Village's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. -1-

39 Nawrocki Smith Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and fiduciary funds of the Incorporated Village of Farmingdale, as of May 31, 2017, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Changes In Accounting Principles and Prior Period Adjustment As discussed in Note 1 to the financial statements, in 2017 the Village adopted accounting guidance, GASB No. 72, Fair Value Measurement and Application and GASB No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68 (paragraphs 115 and 116 only). The effect of GASB No. 73 required a prior period adjustment as discussed in Note 14 to the financial statements. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information, schedule of funding progress for the retiree health plan and pension schedules, on pages 3-13 and pages respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board ("GASB"), who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 30, 2017, on our consideration of the Village's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Village's internal control over financial reporting and compliance. Melville, New York October 30,

40 INCORPORATED VILLAGE OF FARMINGDALE MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED MAY 31, 2017 The following is a discussion and analysis of the Incorporated Village of Farmingdale's (the "Village") financial performance for the fiscal year ended May 31, This section is a summary of the Village's financial activities based on currently known facts, decisions or conditions. It is also based on both the Village-wide and fund-based financial statements. The results of the current year are discussed in comparison with the prior year, with an emphasis placed on the current year. This section is only an introduction and should be read in conjunction with the Village's financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS As of May 31, 2017, the Village's total assets and deferred outflows of resources, exceed liabilities and deferred inflows of resources by $12,283,304, net position. The Village spent $4,260,418 toward the completion of capital improvements, equipment and the acquisition of property for future Village improvements. Governmental funds fund balance increased $1,780,089 for the year ended May 31, OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of two parts: the basic financial statements and required supplementary information (including this section; "MD&A"). The financial statements include two kinds of financial statements that present different views of the Village: The first two financial statements are Village-wide financial statements that provide both short-term and long-term information about the Village's overall financial status. The remaining financial statements are fund financial statements that focus on individual parts of the Village, reporting the Village's operations in more detail than the Village-wide financial statements. The fund financial statements tell how programs were financed in the short-term as well as what remains for future spending. Fiduciary Fund financial statements provide information about the financial relationships in which the Village acts solely as a trustee or agent for the benefit of others. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The financial statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the Village's budget for the General Fund and Water Fund for the year. Table A-1 summarizes the major features of the Village's financial statements, including the portion of the Village's activities they cover and the types of information they contain. The remainder of this overview section of Management's Discussion and Analysis highlights the structure and contents of each of the financial statements. -3-

41 Table A-1: Major Features of the Village-Wide and Fund Financial Statements Village-Wide Fund Financial Statements Financial Statements Governmental Funds Fiduciary Funds Scope Entire Village (except The activities of the Instances in which fiduciary funds) Village that are not the Village proprietary or administers fiduciary resources on behalf of someone else Required financial Statement of Net Balance Sheet Statement of statements Position Statement of Fiduciary Net Statement of Revenues, Position Activities Expenditures and Changes in Fund Balance Accounting basis and Accrual accounting Modified accrual Accrual accounting measurement focus and economic accounting and and economic resources focus current financial focus resources focus Type of All assets, deferred Generally, assets and All assets, deferred asset/deferred outflows of resources, deferred outflows of outflows of outflows of liabilities, and resources expected resources (if any), resources/liability/ deferred inflows of to be used up and liabilities, and deferred inflows of resources, both liabilities and deferred deferred inflows of resources information financial and capital, inflows of resources resources (if any), short-term and long- that come due or both short-term term available during the and long-term, year or soon funds do not thereafter, no capital currently contain assets, or long-term capital assets, liabilities included although they can Type of outflow/inflow All revenues and Revenues for which All additions and information expenses during cash is received deductions during year, regardless of during or soon after the year, when cash is the end of the year; regardless of when received or paid expenditures when cash is received or goods or services paid have been received and the related liability is due and payable Village-Wide Financial Statements The Village-wide financial statements report information about the Village as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all of the Village's assets, deferred outflows of resources, liabilities and deferred inflows of resources. All of the current year's revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. -4-

42 The two Village-wide financial statements report the Village's net position and how they have changed. Net position - the difference between the Village's assets, deferred outflows of resources, liabilities and deferred inflows of resources - is one way to measure the Village's financial health or position. Over time, increases or decreases in the Village's net position are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the Village's overall health, you need to consider additional non-financial factors such as availability of federal funding and the condition of buildings and other facilities. In the Village-wide financial statements, the Village's activities are shown as governmental activities; most of the Village's basic services are included here. Property taxes and charges for services finance most of these activities. Fund Financial Statements The fund financial statements provide more detailed information about the Village's funds, focusing on its most significant or "major" funds - not the Village as a whole. Funds are accounting devices the Village uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by State law and by bond covenants. The Village establishes other funds to control and to manage money for particular purposes or to show that it is properly using certain revenues (such as Federal grants). The Village has two kinds of funds: Governmental funds: Most of the Village's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the fund financial statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Village's programs. Because this information does not encompass the additional long-term focus of the Village-wide financial statements, reconciliations of the Village-wide and fund financial statements are provided which explain the relationship (or differences) between them. Fiduciary funds: The Village is the trustee or fiduciary, for assets that belong to others. The Village is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The Village excludes these activities from the Village-wide financial statements because it cannot use these assets to finance its operations. -5-

43 FINANCIAL ANALYSIS OF THE VILLAGE AS A WHOLE For the year ended May 31, 2017, the Village implemented GASS Statement No. 73, specifically in regards to assets accumulated for the Village's service award program. The prior year balance has been restated to give effect to this implementation. The Village's net position increased $4,215 from the year before to $12,283,304 as detailed in Tables A-2 and A-3. Table A-2: Condensed Statements of Net Position - Governmental Activities 5/31/2017 5/31/2016 $Change %Change Current and other assets $ 8,651,432 $ 7,540,401 $ 1,111, Capital assets, net 19,952,418 17,233,737 2,718, Total assets $ 28,603,850 $ 24,774,138 $ 3,829, Deferred outflows of resources $ 330,276 $ $ (451,240} (57.7) Current liabilities $ 2,541,576 $ 3,699,266 $ (1,157,690) (31. 3) Noncurrent liabilities 13,462,095 9, 119,340 4,342, Total liabilities $ 16,003,671 $ 12,818,606 $ 3,185, Deferred inflows of resources $ $ $ 189, Net position: Net investment in capital assets $ 12,895,575 $ 11,993,913 $ 901, Restricted 2,478, 110 1,690, , Un restricted {3,090,381) {1,405,498) {1,684,883) (119.9) Total net position $ 12,283,304 ~ 12,279,089 $ The Village's total assets increased $3,829, 712. The increase in current assets is due to an increase in restricted cash in the Capital Projects Fund from unspent bond proceeds. Capital assets, net increased as a result of capital outlay exceeding depreciation by $2, 718,681. The Village purchased various equipment, and also completed a number of Village improvements, such as road paving, rehabilitation of Village owned parking lots, the acquisition of two parcels of land to be used to further enhance the Village's business district, and various items needed for the Village's water district. The proportionate share of State pension items are recorded within deferred outflows of resources and deferred inflows of resources. The decrease is the amortization of those items in accordance with GASS 68. Total liabilities increased $3, 185,065. The Village issued $4, 750,000 in public improvement serial bonds during The proceeds of those bonds were partially used to acquire the capital assets mentioned above, as well as repay the $1,850,000 of the 2016 bond anticipation note. During 2017, the Village issued a bond anticipate note for $1,000,000 at 1.3%. -6-

44 Changes in Net Position Table A-3: Changes in Net Position from Operating Results - Governmental Activities Only 5/31/2017 5/31/2016 $Change % Change Revenues Program revenues: Charges for services $ 2,759,963 $ 2,463,604 $ 296, Operating grants 510, , , Capital grants 225,903 (225,903) (100.0) General revenues: Real property taxes 3,609,116 3,772,391 (163,275) (4.3) Other tax items 173, , , Non-property tax items 441, ,707 27, Use of money and property 210, ,984 (4,497) (2.1) Sale of property and compensation for loss 9,518 23,833 (14,315) (60.1) Mortgage and other taxes 152, ,827 18, Other state aid 80, ,288 (58, 146) (42.0) Other 12,359 5, 106 7, Total revenues 7,959,478 7,922,977 36, Expenses General government 1,580,979 1,204, , Public safety 1, 159,834 1,090,748 69, Transportation 2,689,786 2,674,373 15, Economic opportunity and assistance 575, , , Culture and recreation 181, ,066 (3, 196) (1. 7) Home and community services 1,583,243 1,612,505 (29,262) (1.8) Debt service - interest 184, ,701 24, Total expenses 7,955,263 7,367, , Change in net position $ $ 555,931 $ (551,716} (99.2) Charges for services mainly increased due to the receipt of special use incentives which increased $129,000 from Other permit categories also increased $34,000. Metered water charges income increased approximately $70,000. The remainder of the increase is from the collection of fines and forfeitures. Real property taxes decreased as a result of the tax rate decreasing for both homestead and non-homestead properties. The taxable assessed value in 2016 was approximately $892 million as compared with $969 million in The increase in assessed value coupled with a decrease in the tax rates, results in the decreased tax levy. In 2016 the Village reported $225,903 for State transportation department allocation of road improvement funding. For the year ended May 31, 2017, the Village did not draw down on their current allocation. Those funds will be carried over to the next fiscal year. Total expenses on the full accrual basis of accounting increased $588,217. As compared to the Village's funds, these expenses include accrual based items and do not necessarily represent cash spent. Such items include, depreciation, judgments and claims, accrued interest, and various other changes in employee benefit related items. -7-

45 Table A-4: Sources of Revenues for Fiscal Year 2017 Operating grants, 6.4% Real property taxes, 45.3% Charges for services, 34.8% Other tax items, 2.2% Other state aid, 1.0% Mortgage and other taxes, 1.9% Sale of property and compensation for loss, 0.1% Non-property tax items, 5.5% Use of money and property, 2.6% Table A-5: Sources of Revenues for Fiscal Year 2016 Capital grants, 2.9% Operating grants, % Real property taxes, 47.6% Charges for ser"1ces, 31.1% Other tax items, 1.4% Other state aid, 1.7% Mortgage and other tax es, 1. 7% Sale of property and compensation for loss, 0.3% Use of money and property, 2. 7% Non-property tax items, 5.2% -8-

46 Table A-6: Sources of Expenses for Fiscal Year 2017 Transportation, 33.8% Public safety, 14.6% Economic opportunity and assistance, 7.2% Culture and recreation, 2.3% General go~rnment, 19.9% Home and community ser..1ces, 19.9% Debt ser..1ce - interest, 2.3% Table A-7: Sources of Expenses for Fiscal Year 2016 Transportation, I 36.3% ~--~~~ Economic opportunity and assistance, 6.0% Public safety, -..._ 14.8% Culture and recreation, 2.5% General go~rnment, 16.3% Home and community ser..1ces, 21.9% Debt ser..1ce - interest, 2.2% -9-

47 FINANCIAL ANALYSIS OF THE VILLAGE'S FUNDS Variances between years for the fund financial statements are not the same as variances between years for the Village-wide financial statements. The Village's governmental funds are presented on the current financial resources measurement focus and the modified accrual basis of accounting. Based on this presentation, governmental funds do not include long-term debt liabilities for the funds' projects and capital assets purchased by the funds. Governmental funds will include the proceeds received from the issuance of debt, the current payments for capital assets and the current payments for debt. The Village's major governmental fund financial statements show the following variations year over year: General Fund The General Fund, reported an excess of revenues over expenditures of $221,345 before transfers to the Capital Projects Fund of $610,450, and revenue from serial bond premiums of $100,000. The transfers to the Capital Projects Funds were part of the Village's ongoing improvement projects and were a planned use of fund balance. The bond premium is restricted for future debt service and is reported as part of restricted fund balance, debt service. Total fund balance as of May 31, 2017 was $4,612,937, of that amount $1,731,737 was restricted for debt service, unemployment insurance, service award programs, and parkland improvements. The remainder of fund balance is assigned for special purposes, encumbrances, subsequent year's expenditures, or is not yet assigned and is available for general purpose use. Water Fund The total change in fund balance was a positive $175,520, as compared to $61, 791. Charges to Village residents for water service increased $65,257 as a result of increased usage. The increase in revenues, in addition to a decrease in expenditures of $52,605, resulted in the positive performance in fiscal The Village spent approximately $70,000 less on equipment service for the Village's water infrastructure. These expenditures vary year over year depending on the severity of maintenance needed, and can be difficult to predict. Capital Projects Fund The Capital Projects Fund deficit was resolved through the issuance of a public improvements serial bond amounting to $4,750,000 and a General Fund transfer of $610,450. Fund balance totaled $676,201 as of May 31, 2017, and is restricted for future capital projects. The Village spent $3,466, 776 on capital improvements and equipment during the year. Those improvements included: $1,029, 700 of road improvements $1, 186,000 used for the acquisition of land to expand Village municipal parking lots $464,000 for municipal parking lot improvements $668,000 for water infrastructure improvements $119,000 for LED street lights (future energy efficiency will contribute to cost savings) During the year the Village renewed $1,000,000 in bond anticipation notes out of the $1,850,000 in 2016, the difference ($850,000) was paid with proceeds from the public improvements serial bond described above. As of May 31, 2017, the Village held $1,642,390 in cash restricted for capital projects, and $217, 144 was due from other funds (General Fund and Water Fund). Total fund balance was $676,

48 Community Development Fund The Village's Community Development Fund accounts for grants that are managed on a reimbursement basis. Specifically, the Village receives grants from Nassau County for passed through Federal funds related to the Community Development Block Grant ("CDBG"), and other local grants. Receivables related to those grants totaled $650,093 at year-end, as compared to $332,488 in the prior year. Variances in this fund are driven by the timing of and approval of budgeted expenditures for community development related projects, and their related payments to the Village. Table A-8: Fund Balances - Governmental Funds 5/31/2017 5/31/2016 $Change % Change General Fund Nonspendable: Prepaid expenses Restricted: Debt service Unemployment insurance Service award program Parkland Trust Assigned: Assigned for special purpose Appropriated for subsequent year's expenditures Encumbrances Unassigned $ 104,482 4,796 1,554,209 68, , , ,542 1,871,957 $ 1,600 44,233 4,792 1,507,847 63, , ,709 68,428 2,536, 180 $ (1,600) (100.0) 60, ,362 4, , , 114 (664,223) (26.2) Total General Fund 4,612,937 4,902,042 (289, 105) (5.9) Water Fund Restricted: Repairs Assigned: Water fund operations Encumbrances 70,172 1,296,615 1,700 70,103 1,055,340 67, ,275 (65,824) (97.5) Total Water Fund 1,368,487 1, 192, , Capital Projects Fund Restricted: Capital improvements Unassigned 676,201 (1,217,473) 676,201 1,217, (100.0) Total Capital Projects Fund 676,201 (1,217,473) 1,893,674 (155.5) Total fund balance $ 6,657,625 $ 4,877,536 $ 1,780,

49 Budgetary Highlights Reference is made to the budget vs. actual schedules on pages 50 and 51 which presents budget and actual results for the Village's General and Water Funds. Actual revenues in the General Fund were greater than the final budgeted revenues by approximately $333,000, primarily due to a higher than projected amount of departmental income, licenses and permits, and State and local aid. Actual expenditures in the General Fund were favorable by approximately $696,000 due to less than anticipated spending in general government, transportation and employee benefits. Actual revenues in the Water Fund were favorable primarily due to a higher than projected amount of departmental income, and actual expenditures were less than favorable primarily due to higher home and community services expenses than anticipated, resulting to a net favorable outcome of approximately $241,000. Capital Assets CAPITAL ASSETS AND DEBT ADMINISTRATION By the end of 2017, the Village had invested $19,952,418, net of depreciation, in a broad range of capital assets. During fiscal year 2017, the Village's capital outlay exceeded depreciation charges of $1,541,737, by $2,718,681. Table A-9: Capital Assets (net of depreciation) 5/31/2017 5/31/2016 $Change % Change Land $ 2,702,470 $ 1,124,900 $ 1,577, Buildings 905, ,605 (29,520) (3.2) Improvements, other than buildings 522, ,170 85, Furniture and equipment 1,700,098 1,795,659 (95,561) (5.3) Roads, curbs, sidewalks and drainage 9,786,696 9, 147, , Water mains 4,335,618 3,793, , Totals $ 19,952,418 $ 17,233,737 $ 2,718, The Village purchased two plots of land to increase parking in the Village's business district accounting for the increase in land of $1.6 million shown above. The Village also made various improvements to its transportation infrastructure (i.e. paving, sidewalks etc.) during the year. Water mains increased as a result of necessary improvements made to the Village's water district. Long-Term Liabilities At year-end, the Village had $13,916,807 in general obligation bonds and other long-term liabilities. During the year, the Village issued $4, 750,000 in public improvement serial bonds to fund various capital improvements within the Village. -12-

50 Table A-10: Outstanding Long-Term Liabilities 5/31/2017 5/31/2016 $Change % Change Bonds payable $ 7,575,000 $ 4,185,000 $ 3,390, Compensated absences 132, ,593 25, Judgments and claims payable 221, , Other post-employment benefits 5,987,935 5,340, , Totals $ 13!916!807 $ 9l632l004 $ 4!284! The Village's net bonded indebtedness may not exceed seven percent of the average full valuation of the taxable real estate of the Village. The Village's net bonded indebtedness currently represents approximately 11.9% of the Village's debt limit. FACTORS BEARING ON THE FUTURE OF THE VILLAGE AND BUDGETS At the time these financial statements were prepared, the Village was aware of the following existing circumstances that could significantly affect its financial health in the future: The future success of the Village and its programs are generally dependent on the ability to collect real property taxes. The "Tax Levy Limitation Law" which was enacted on June 24, 2011 restricts the amount of property taxes that may be levied by or on behalf of a Village in a particular year. Although there are exceptions, exemptions and overrides to the limitation, the Law is expected to make budgetary decisions more difficult. The Village's ability to finance its continuing improvement of Main Street and other areas of the Village. The Village will continue to see reduced costs as a result of certain improvements like the installation of LED lighting. The Village adopted a General Fund Appropriation Budget of $6,009,310 with a tax levy of $3, 760,026, which compiles with the "Tax Levy Limitation Law" described above. CONTACTING THE VILLAGE'S FINANCIAL MANAGEMENT This financial report is designed to provide the Village's citizens, taxpayers, customers and creditors with a general overview of the Village's finances and to demonstrate the Village's accountability for the money it receives. If you have any questions about this report or need additional financial information, please contact: Incorporated Village of Farmingdale Village Hall 361 Main Street Farmingdale, New York (516)

51 INCORPORATED VILLAGE OF FARMINGDALE STATEMENT OF NET POSITION MAY 31, 2017 ASSETS Cash: Unrestricted Receivables: Property taxes receivable Accounts receivable Due from other governments Due from fiduciary funds Restricted cash Service award program assets Capital assets: Non-depreciable capital assets Depreciable capital assets, net Total assets DEFERRED OUTFLOWS OF RESOURCES Pension related Total deferred outflows of resources LIABILITIES Payables: Accounts payable and accrued expenses Bond anticipation note Unearned revenue Accrued interest payable Due to fiduciary funds Long-term liabilities, due within one year: Bonds payable, net Compensated absences Judgments and claims payable Long-term liabilities, due after one year: Bonds payable, net Compensated absences Judgments and claims payable Other post-employment benefits Proportionate share of net pension liability Total liabilities DEFERRED INFLOWS OF RESOURCES Property taxes for subsequent fiscal year Deferred grant revenue Pension related Total deferred inflows of resources $ 2,501, , , ,149 3,969 3,444,299 1,554,209 2,702,470 17,249,948 28,603, , , ,426 1,000,000 6,811 86, ,176 22, ,900 6,795, , ,479 5,987, ,499 16,003, ,052 14,354 79, ,151 NET POSITION Net investment in capital assets Restricted: Debt service Repairs Capital improvements Unemployment insurance Service award program Parkland Trust Un restricted Total net position $ 12,895, ,482 70, ,201 4,796 1,554,209 68,250 {3,090,381} 12,283,304 The accompanying notes are an integral part of this statement. -14-

52 INCORPORATED VILLAGE OF FARMINGDALE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MAY 31, 2017 Functions and programs: Primary government - General government Public safety Health Transportation Economic opportunity and assistance Culture and recreation Home and community services Debt service - interest $ Expenses 1,580,979 1,159,834 2,689, , ,870 1,583, ,195 Program Revenues Charges for Operating Services, Fees, Grants and Fines and Forfeitures Contributions $ 67,211 $ 752,883 6, ,979 30, ,769 1,613,060 $ Net Revenues (Expenses) and Changes in Net Position Primary Government (1,513,768) (406,951) 6,570 (2,399,807) (34,327) (181,870) 29,817 (184, 195) Total primary government $ 7,955,263 $ 2,759,963 $ 510,769 (4,684,531) General revenues: Real property taxes Other tax items Non-property tax items Use of money and property Sale of property and compensation for loss Mortgage and other taxes Other state aid Other 3,609, , , ,487 9, ,136 80,142 12,359 Total general revenues 4,688,746 Change in net position 4,215 Total net position, beginning of year, as restated (see Note 14) Total net position, end of year $ 12,279,089 12,283,304 The accompanying notes are an integral part of this statement. -15-

53 INCORPORATED VILLAGE OF FARMINGDALE BALANCE SHEET- GOVERNMENTAL FUNDS MAY 31, 2017 Major Funds Special Revenue Total Community Capital Governmental General Water Development Projects Funds ASSETS Cash: Unrestricted $ 1,236,236 $ 1,265,403 $ $ $ 2,501,639 Restricted 1,731,737 70,172 1,642,390 3,444,299 Service award program asset investments 1,554,209 1,554,209 Receivables: Property taxes 160, ,256 Accounts receivable 75, , ,911 Due from other governments 74, , ,149 Due from other funds 694, , ,911 Due from fiduciary funds 3,969 3,969 Total assets ~ 5,530,300 ~ 1,523,416 ~ 650,093 ~ 1,859,534 ~ 9,563,343 LIABILITIES Accounts payable and accrued expenses $ 141,553 $ 118,693 $ 58,495 $ 100,685 $ 419,426 Bond anticipation note 1,000,000 1,000,000 Due to other funds 215,783 36, ,244 82, ,911 Unearned revenue 6,811 6,811 Due to fiduciary funds Total liabilities 364, , ,739 1,183,333 2,338,312 DEFERRED INFLOWS OF RESOURCES Property taxes for subsequent fiscal year 553, ,052 Deferred grant revenue 14,354 14,354 Total deferred inflows of resources 553,052 14, ,406 Total liabilities and deferred inflows of resources 917, , ,093 1,183,333 2,905,718 FUND BALANCE Restricted 1,731,737 70, ,201 2,478,110 Assigned 1,009,243 1,298,315 2,307,558 Unassigned 1,871,957 1,871,957 Total fund balance 4,612,937 1,368, ,201 6,657,625 Total liabilities, deferred inflows of resources and fund balance ~ 5,530,300 ~ 1,523,416 ~ 650,093 ~ 1,859,534 ~ 9,563,343 The accompanying notes are an integral part of this balance sheet. -16-

54 INCORPORATED VILLAGE OF FARMINGDALE RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION MAY 31, 2017 Total Fund Balance - Governmental Funds $ 6,657,625 Amounts reported for governmental activities in the Statement of Net Position are different due to the following: Capital assets less accumulated depreciation are included in the Statement of Net Position: Capital assets: Non-depreciable Depreciable Accumulated depreciation $ 2,702,470 44,506,044 (27,256,096) 19,952,418 Proportionate share of long-term liability, deferred outflows and inflows associated with participation in the State retirement system are not current financial resources or obligations and are not reported in the funds: Deferred outflows of resources - pension related Proportionate share of net pension liability Deferred inflows of resources - pension related 330,276 (449,499) (79,745) (198,968) Long-term liabilities applicable to the Village's governmental activities that are not due and payable in the current period and accordingly are not reported in the governmental fund financial statements. However, these liabilities are included in the Statement of Net Position: Bonds payable, net Compensated absences Judgments and claims payable Other post-employment benefits (7,699,233) (132,493) (221,379) (5,987,935) ( 14,041,040) Interest payable applicable to the Village's governmental activities are not due and payable in the current period and accordingly are not reported in the governmental fund financial statements. However, these liabilities are included in the Statement of Net Position: Net Position - Governmental Activities (86,731) $ The accompanying notes are an integral part of this statement. -17-

55 INCORPORATED VILLAGE OF FARMINGDALE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED MAY 31, 2017 Major Funds REVENUES Real property taxes $ Other tax items Non-property tax items Departmental income Intergovernmental charges Fines and forfeitures Use of money and property Licenses and permits State and local aid Federal aid Sale of property and compensation for loss Miscellaneous revenues General Water 3,609, 116 $ 173, , ,546 1,322,202 86, , , ,006 4, ,278 9,518 12,359 Special Revenue $ Community Development 510,769 30,260 Capital Projects Total Governmental Funds $ $ 3,609, , ,133 1,962,748 86, , , , , ,769 9,518 42,619 Total revenues 6,090,941 1,327, ,029 7,959,478 EXPENDITURES Current: General government Public safety Transportation Economic opportunity and assistance Culture and recreation Home and community services Employee benefits Capital outlay Debt service: Principal Interest 1,244, ,016 1,019,320 34, , , ,341 1,212, ,188 1,299,536 60, ,580 6, ,029 1,244, ,016 1,019, , ,268 1,007,220 1,399,462 3,466,776 3,466,776 1,360, ,575 Total expenditures 5,869,596 1,151, ,029 3,466,776 11,029,389 Excess (deficiency) of revenues over (under) expenditures 221, ,520 (3,466, 776) (3,069,911) OTHER FINANCING SOURCES (USES) Proceeds from issuance of serial bond Premiums on obligations lnterfund transfers in lnterfund transfers out 100,000 (610,450) 4,750,000 4,750, , , ,450 (610,450) Total other financing sources (510,450) 5,360,450 4,850,000 Changes in fund balance (289, 105) 175,520 1,893,674 1,780,089 Fund balance, beginning of year, as restated (see Note 14) 4,902,042 1, 192,967 (1,217,473) 4,877,536 Fund balance, end of year $ 4,612,937 ~ 1,368,487 ~ 676,201 ~ 6,657,625 The accompanying notes are an integral part of this statement. -18-

56 INCORPORATED VILLAGE OF FARMINGDALE RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MAY 31, 2017 Net Change in Fund Balance - Governmental Funds Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The amount by which capital outlay exceeds depreciation expense in the current period is: Capital outlay Depreciation expense The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. Proceeds from issuance of serial bond Premiums on obligations Repayment of bond principal Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds: Compensated absences Judgments and claims payable Other post-employment benefits Amortization of original issue bond premium Accrued interest costs Decreases in the proportionate share of net pension liability reported in the Statement of Activities do not provide for or require the use of current financial resources and therefore are not reported as revenues or expenditures in the governmental funds. Employees' Retirement System Change in Net Position - Governmental Activities $ 1,780,089 $ 4,260,418 (1,541,737) 2,718,681 (4,750,000) (100,000) 1,360,000 (3,490,000) (25,900) (221,379) (647,524) 9,177 (59,797) (945,423) (59, 132) $ The accompanying notes are an integral part of this statement. -19-

57 INCORPORATED VILLAGE OF FARMINGDALE STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS MAY 31, 2017 Agency Funds ASSETS Cash $ 329,604 $ Due from other funds 164 Total assets $ $ LIABILITIES Deposits and other liabilities $ 325,799 $ Justice Court Due to other funds 3,969 Total liabilities $ $ Justice Court 38, ,

58 INCORPORATED VILLAGE OF FARMINGDALE NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, Summary of significant accounting policies The financial statements of the Incorporated Village of Farmingdale (the "Village") have been prepared in conformity with accounting principles generally accepted in the United States of America ("GMP") as applied to government units. The Governmental Accounting Standards Board ("GASB") is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the Village's accounting policies are described below. A. Financial reporting entity The Incorporated Village of Farmingdale, was incorporated in 1904, is governed by its Charter, General Municipal Law, Village Law, other general laws of the State of New York and various local laws. The Village Board of Trustees is the legislative body responsible for overall operations. The Mayor serves as chief executive officer and the Village Clerk serves as chief fiscal officer. The Village provides a full range of municipal services including highway, fire protection, water, justice court, building and zoning, and other general services. The financial reporting entity of the Village consists of (a) the primary government which is the Incorporated Village of Farmingdale, (b) organizations for which the primary government is financially accountable and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete as set forth in GASB. B. Basis of presentation 1. Village-wide financial statements The Statement of Net Position and the Statement of Activities present financial information about the Village's governmental activities. These financial statements include the financial activities of the overall government in its entirety, except those that are fiduciary. Eliminations have been made to minimize the double counting of internal transactions. Governmental activities generally are financed through taxes, State aid, intergovernmental revenues, and other exchange and nonexchange transactions. Operating grants include operating-specific and discretionary (either operating or capital) grants, while the capital grants column reflects capital-specific grants. The Statement of Activities presents a comparison between program expenses and revenues for each function of the Village's governmental activities. Direct expenses are those that are specifically associated with and are clearly identifiable to a particular function. Indirect expenses, principally employee benefits, are allocated to functional areas in proportion to the payroll expended for those areas. Program revenues include charges paid by the recipients of goods or services offered by the programs, and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. -21-

59 2. Fund financial statements The fund financial statements provide information about the Village's funds, including fiduciary funds. Separate financial statements for each fund category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The Village records its transactions in the fund types described below: a. Governmental funds - are those through which most governmental functions are financed. The acquisition, use and balances of expendable financial resources and the related liabilities are accounted for through governmental funds. The measurement focus of the governmental funds is upon the determination of financial position and changes in financial position (the sources, uses and balances of current financial resources). The following are the Village's governmental fund types: General Fund - the principal operating fund which includes all operations not required to be recorded in other funds. Capital Projects Fund - used to account for financial resources to be used for the acquisition, construction or resurfacing of major capital facilities and equipment. Special Revenue Funds - used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. The following Special Revenue Funds are utilized: Water Fund - used to account for water operations not required to be accounted for on an enterprise basis. Revenue is generated from metered water sales to Village residents. Community Development Fund - used to account for and report financial resources applied for and received from New York State as awarded by the Department of Housing and Urban Development ("HUD") program. Capital outlays are restricted for usage and subject to the terms of federally funded programs. b. Fiduciary funds - used to account for assets held by the local government in a trustee or custodial capacity: Agency Funds - used to account for money (and/or property) received and held in the capacity of trustee, custodian or agent. The Village accounts for the Justice Court as an Agency Fund. C. Measurement focus and basis of accounting Basis of accounting refers to when revenues and expenditures/expenses and the related assets, deferred outflows of resources, liabilities and deferred inflows of resources, are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus. Measurement focus is the determination of what is measured, i.e. expenditures or expenses. -22-

60 Modified accrual basis - the fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The Village considers all revenues reported in the governmental funds to be available if the revenues are collected within 90 days after the end of the fiscal year, except for real property taxes, which are considered to be available if they are collected within 60 days after the end of the fiscal year. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, other post-employment benefits, compensated absences and the proportionate share of the net pension liability, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Material revenues that are accrued include real property taxes, State and Federal aid, sales tax and certain user charges. If expenditures are the prime factor for determining eligibility, revenues from Federal and State grants are accrued when the expenditure is made and the resources are available. Accrual basis - the Village-wide and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash transaction takes place. Nonexchange transactions, in which the Village gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and donations are recognized in the fiscal year in which all eligibility requirements have been satisfied. Fixed assets and long-term liabilities related to these activities are recorded within the funds. D. Property taxes Real property taxes are due no later than June 1st payable until July 1st without penalty. Unpaid Village taxes on February 28th of the subsequent year are enforced by tax sale. In cases where no bid is made on a parcel of land offered for sale for an amount sufficient to pay tax, interest and charges, the premises are deemed to have been sold to and purchased by the Village. E. lnterfund transactions lnterfund transactions have been eliminated from the Village-wide financial statements. In the fund financial statements, interfund transactions include: 1. lnterfund revenue Transfers in represent amounts charged for services or facilities provided by one fund to another fund. The amounts paid by the fund receiving the benefits of the service or facilities are reflected as an expenditure of the fund receiving the service. -23-

61 2. Transfers in/out Transfers represent payments to/from other funds for reimbursement of costs paid by one fund for another fund or funding for capital projects. F. Cash and cash equivalents Cash consists of funds deposited in demand accounts, time deposit accounts and certificates of deposit with maturities of less than three months from the date acquired by the Village. G. Investments Investments are reported at fair value, and consist of assets held for the Village sponsored service award program. H. Receivables Receivables include amounts due from Federal, State and other governments or entities for services provided by the Village. Receivables are recorded and revenues are recognized as earned or as specific program expenditures are incurred. I. Restricted assets Certain assets are classified as restricted assets because their use is restricted by contractual agreements and regulations. J. Capital assets Capital assets are reported at actual cost or estimated historical costs, based on appraisals conducted by independent third-party professionals. Donated assets are reported at estimated fair market value at the time received. Capitalization thresholds (the dollar value above which asset acquisitions are added to the capital asset accounts), depreciation methods, and estimated useful lives of capital assets reported in the Village-wide financial statements are as follows: Capitalization Depreciation Estimated Threshold Method Useful Life Buildings $ 5,000 Straight line 50 years Improvements, other than building $ 5,000 Straight line 20 years Furniture and equipment $ 5,000 Straight line 5-50 years Infrastructure systems: Roads, curbs and sidewalks $ 5,000 Straight line years Drainage $ 5,000 Straight line 50 years Water mains $ 5,000 Straight line 50 years K. Deferred outflows of resources In addition to assets, the Balance Sheet or Statement of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. -24-

62 L. Deferred inflows of resources/unearned revenue In addition to liabilities, the Balance Sheet or Statement of Net Position will sometimes report a separate section for deferred inflows of resources. Deferred inflows are reported when potential revenues do not meet both the measurable and available criteria for recognition in the current period. Unearned revenues also arise when the Village receives resources before it has legal claim to them, as when charges for services are received prior to performing or satisfying the service. In subsequent periods, when both recognition criteria are met, or when the Village has legal claim to the resources, the deferred inflows are removed and revenues are recorded. M. Long-term obligations The liabilities for long-term obligations consisting of general obligation bonds payable, compensated absences, judgments and claims payable, the proportionate share of the net pension liability and other post-employment benefits are recognized in the Villagewide financial statements. In the fund financial statements, long-term obligations are not reported as liabilities. The debt proceeds are reported as other financing sources and payment of principal and interest are reported as expenditures when paid. N. Compensated absences Employees accrue vacation leave based primarily on the number of years employed up to a maximum rate of 25 days a year. Upon separation from service, employees are paid varying amounts as provided for in their respective collective bargaining agreement. Employees accrue sick leave at the rate of 12 days with maximum accrual amounts varying based on their respective collective bargaining agreement. Upon separation from service, employees are paid varying amounts as provided for in their respective collective bargaining agreement. Vested vacation and sick leave is recorded in governmental funds as a fund liability and expenditures, if payable from current resources. 0. Post-employment benefits In addition to providing pension benefits, the Village provides health insurance coverage and survivor benefits for retired employees and their survivors that meet the requirements within the Village's policies. Substantially all of the Village's employees may become eligible for these benefits if they reach normal retirement age while working for the Village. Health care benefits and survivors benefits are provided through an insurance company whose premiums are based on the benefits paid during the year. The Village recognizes the cost of providing benefits by recording its share of insurance premiums as expenditures in the year paid. During the year ended May 31, 2017, $263,072 was paid on behalf of 18 retirees and recorded as an expenditure between the General Fund and the Water Fund. -25-

63 P. Net position In the Village-wide financial statements, there are three classes of net position: 1. Net investment in capital assets: consists of net capital assets (cost less accumulated depreciation) reduced by outstanding balances of related debt obligations from the acquisition, construction or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction or improvement of those assets or related debt also should be included in this component of net position. If there are significant unspent related debt proceeds or deferred inflows of resources at the end of the reporting period, the portion of the debt or deferred inflows of resources attributable to the unspent amount should not be included in the calculation of net investment in capital assets. Instead, that portion of the debt or deferred inflows of resources should be included in the same net position component (restricted or unrestricted) as the unspent amount. 2. Restricted: consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Generally, a liability relates to restricted assets if the asset results from a resource flow that also results in the recognition of a liability or if the liability will be liquidated with the restricted assets reported. 3. Unrestricted: is the amount of assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. Fund financial statements In the fund financial statements, there are five classifications of fund balance: 1. Nonspendable - Includes amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. The Village has no nonspendable fund balance as of May 31, Restricted - Includes amounts with constraints placed on the use of resources either externally imposed by creditors, granters, contributors, or laws or regulations of other governments; or imposed by law through constitutional provisions or enabling legislation. The Village has established the following restricted fund balances: Debt Service According to General Municipal Law 6-1, the Debt Service reserve must be established for the purpose of retiring the outstanding debt service payments on the general obligation bonds used to originally purchase the property. The funding of the reserve is from the proceeds of the sale of property or capital improvement. Repairs According to General Municipal Law 6-d, such amounts must be used to pay the cost of repairs to capital improvements or equipment, which repairs are of a type not recurring annually. The Board without voter approval may establish a repair reserve fund by a majority vote of its members. Voter approval is required to fund this reserve (Opinion of the New York State Comptroller ). Expenditures from this reserve may be made only after a public hearing has been held, except in emergency situations. If no hearing is held, the amount expended must be repaid to the reserve fund over the next two subsequent fiscal years. -26-

64 Unemployment Insurance According to General Municipal Law 6-m, such amounts must be used to pay the cost of reimbursement to the State Unemployment Insurance Fund for payments made to claimants where the employer has elected to use the benefit reimbursement method. The reserve may be established by Board action and is funded by budgetary appropriations and such other funds as may be legally appropriated. Within sixty days after the end of any fiscal year, excess amounts may either be transferred to another reserve or the excess applied to the appropriations of the next succeeding fiscal year's budget. If the Village elects to convert to the tax (contribution) basis, excess resources in the fund over the sum sufficient to pay pending claims may be transferred to any other reserve fund. Service award program The Village sponsors a Length of Service Award program for the fire department, as described in note 10. Those assets, in accordance with GASB Statement No. 73, are to be recorded within the governmental funds of the Village and are restricted by General Municipal Law Article 11-A. Parkland Trust According to General Municipal Law 6-1, the parkland trust reserve reports funds which are restricted for capital expenditures related to parks, playgrounds, and recreational designated areas. 3. Committed - Includes amounts that are subject to a purpose constraint imposed by a formal action of the government's highest level of decision-making authority before the end of the fiscal year, and that require the same level of formal action to remove the constraint. The Village Board of Trustees is the decision-making authority that can, by Board resolution, commit fund balance. The Village has no committed fund balances as of May 31, Assigned - Includes amounts that are intended to be used for specific purposes that are neither considered restricted or committed, except for tax stabilization agreements. The intent can be expressed by the Board or through the Board delegating this responsibility to the Village administration through the budgetary process. The classification also includes the remaining positive fund balances for all governmental funds except for the General Fund. 5. Unassigned - Includes all other General Fund fund balance that does not meet the definition of the above four classifications and are deemed to be available for general use by the Village. The unassigned classification also includes negative residual balances of any other governmental fund that cannot be eliminated by offsetting assigned fund balance amounts. -27-

65 Fund balances for all governmental funds as of May 31, 2017 were distributed as follows: Total Capital Governmental General Water Projects Funds Restricted: Debt service $ 104,482 $ $ $ 104,482 Repairs 70,172 70,172 Capital improvements 676, ,201 Unemployment insurance 4,796 4,796 Service award program 1,554,209 1,554,209 Parkland Trust 68,250 68,250 Total restricted 1,731,737 70, ,201 2,478, 110 Assigned: Designated for special purpose 739,915 1,296,615 2,036,530 Designated for subsequent year's expenditures 104, ,786 Encumbrances 164,542 1, ,242 Total assigned 1,009,243 1,298,315 2,307,558 Unassigned 1,871,957 1,871,957 Order of use of fund balance $ ~ 1,368,487 $ 676,201 ~ 6,657,625 The Village's policy is to apply expenditures against nonspendable fund balance, restricted fund balance, committed fund balance, assigned fund balance and unassigned fund balance at the end of the fiscal year. For all funds, nonspendable fund balances are determined first and then restricted fund balances for specific purposes are determined. Any remaining fund balance amounts for funds other than the General Fund are classified as either assigned or restricted fund balance. In the General Fund, committed fund balance is determined next and then assigned. The remaining amounts are reported as unassigned. Assignments of fund balance cannot cause a negative unassigned fund balance. Q. Insurance The Village assumes the liability for most risk including, but not limited to, property damage and personal injury liability. The Village maintains insurance policies in amounts and on terms generally standard for municipalities to insure against these liabilities. These insurance policies limit the overall exposure to Village assets by providing a third party insurer to assume the risk and liabilities relating to claims. Judgments and claims are recorded when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. R. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets, deferred outflows of resources, liabilities, and deferred inflows of resources, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are made in a variety of areas, including computation of encumbrances, compensated absences, potential contingent liabilities and useful lives of long-lived assets. -28-

66 S. New accounting standard The Village implemented GASB Statement No. 72, Fair Value Measurement and Application. This Statement provides guidance for determining a fair value measurement for financial reporting purposes, including certain investments. This Statement also establishes required fair value disclosures. The Village adopted this Statement for its May 31, 2017 financial statements. The Village implemented GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, specifically in regards to assets accumulated for the Length of Service Award Program. The implementation of this Statement requires the Village to record those assets accumulated in the Village's General Fund instead of in the Village's Agency Fund. See Note 14 for the financial statement impact of the implementation of this Statement. The Village adopted this Statement for its May 31, 2017 financial statements. 2. Explanation of certain differences between fund financial statements and Village-wide financial statements Due to the differences in the measurement focus and basis of accounting used in the fund financial statements and the Village-wide financial statements, certain financial transactions are treated differently. The basic financial statements contain a full reconciliation of these items. The differences result primarily from the economic focus of the Statement of Activities, compared with current financial resources focus of the governmental funds. A. Total fund balances of governmental funds vs. net position of governmental activities Total fund balances of the Village's governmental funds differ from "net position" of governmental activities reported in the Statement of Net Position. This difference primarily results from the additional long-term economic focus of the Statement of Net Position versus the solely current financial resources focus of the governmental funds Balance Sheet. B. Statement of Revenues, Expenditures and Changes in Fund Balance vs. Statement of Activities Differences between the governmental funds Statement of Revenues, Expenditures and Changes in Fund Balance and the Statement of Activities fall into one of four broad categories. The categories are shown below: 1. Long-term revenue/expense differences Long-term revenue differences arise because governmental funds report revenues only when they are considered "available", whereas the Statement of Activities reports revenues when earned. Differences in long-term expenses arise because governmental funds report on a modified accrual basis, whereas the accrual basis of accounting is used on the Statement of Activities. 2. Capital related differences Capital related differences include the difference between proceeds from the sale of capital assets reported on fund financial statements and the gain or loss on the sale of assets as reported on the Statement of Activities, and the difference between recording an expenditure for the purchase of capital items in the fund financial statements and depreciation expense on those items as recorded in the Statement of Activities. -29-

67 3. Long-term debt transaction differences Long-term debt transaction differences occur because both interest and principal payments are recorded as expenditures in the fund financial statements, whereas interest payments are recorded in the Statement of Activities as incurred, and principal payments are recorded as a reduction of liabilities in the Statement of Net Position. 4. Pension differences Pension differences occur as a result of changes in the Village's proportion of the collective net pension liability and differences between the Village's contributions and its proportionate share of the total contributions to the pension systems. 3. Stewardship, compliance and accountability A. Budgetary data 1. Budget policies a. No later than March 20, the Budget Officer submits a tentative budget to the Village Board of Trustees for the fiscal year commencing the following June 1. The tentative budget includes proposed expenditures and the proposed means of financing for all funds. b. After public hearings are conducted to obtain taxpayer comments, no later than May 1, the Village Board of Trustees adopts the budget. c. All modifications of the budget must be approved by the Village Board of Trustees. 2. Budget basis of accounting Budgets are adopted annually for the General and Water Funds on a basis consistent with accounting principles generally accepted in the United States of America. Appropriations authorized for the current year are increased by the amount of encumbrances carried forward from the prior year. Encumbrances Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of monies, are recorded for budgetary control purposes to reserve that portion of the applicable appropriation, is employed in the governmental funds. Appropriations for all governmental funds lapse at year-end. However, encumbrances reserved against fund balances are re-appropriated in the ensuring year. Encumbrances are reported as assigned fund balances since they do not constitute expenditures or liabilities. Expenditure for such commitments are recorded in the period in which the liability is incurred. -30-

68 4. Deposits and investments The Village's investment policies are governed by State statutes. In addition, the Village has its own written investment policy. Village monies must be deposited in Federal Deposit Insurance Corporation ("FDIC") insured commercial banks or trust companies located within the State. The Village Treasurer is authorized to use demand accounts and certificates of deposit. Permissible investments include obligations of the U.S. Treasury and U.S. agencies, repurchase agreements and obligations of New York State or its localities. Collateral is required for demand deposits and certificates of deposit at 102 percent of all deposits not covered by federal deposit insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the State and its municipalities. The written investment policy requires repurchase agreements to be purchased from banks located within the State and that underlying securities must be obligations of the federal government. Underlying securities must have a market value of at least 102 percent of the cost of the repurchase agreement. Cash equivalents are defined as short-term, highly liquid investments that are both readily convertible to known amounts of cash and near their maturity. Custodial credit risk - deposits/investments: Custodial credit risk for deposits exists when, in the event of the failure of a depository financial institution, a government may be unable to recover deposits, or recover collateral securities that are in possession of an outside agency. Custodial credit risk for investments exists when, in the event of the failure of the counterparty, a government will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. GASB directs that deposits be disclosed as exposed to custodial credit risk if they are not covered by depository insurance, and the deposits are either: Uncollateralized Collateralized with securities held by the pledging financial institution, or Collateralized with securities held by the pledging financial institution's trust department or agent but not in the Village's name Deposits at year-end were entirely covered by federal depository insurance or by collateral held by the Village's custodial banks in the Village's name. The Village's deposits at yearend consisted of: Bank Carrying Fund Balance Amount General Fund $ 3,007,167 $ 2,921,611 Insured (FDIC)/Collateralized Water Fund 1,334,794 1,335,575 Insured (FDIC)/Collateralized Capital Projects Fund 1,642,392 1,642,390 Insured (FDIC)/Collateralized Fiduciary Fund 334, ,256 Insured (FDIC)/Collateralized $ 6!318!523 $ 6!267!832 Credit risk: State law limits investments to those authorized by State statutes. The Village has a written investment policy. -31-

69 Interest-rate risk: Interest-rate risk arises because potential purchasers of debt securities will not agree to pay face value for those securities if interest rates substantially increase, thereby affording potential purchasers more favorable rates on essentially equivalent securities. Accordingly, such investments would have to be held to maturity to avoid potential loss. Concentration of credit risk: Credit risk can arise as a result of failure to adequately diversify investments. Concentration risk disclosure is required for positions of 5 percent of more in securities of a single issuer. The Village does currently does not have any position of 5% of more in a single issuer. As of May 31, 2017, the Village did not have any investments subject to credit risk, interestrate risk, or concentration of credit risk. Fair Value Hierarchy - Service Award Program Assets Described further in Note 10, the Village sponsors a defined benefit length of service award program ("LOSAP") effective January 1, 1992 for active volunteer firefighter members of the Village. Accounting standards require those assets, mainly held in investments, to be recognized within the governmental funds of the Village. The information below is specifically attributed to those investment assets. The Village categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The three levels of the fair value hierarchy are as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs (other than quoted prices included within Level 1) that are observable for the asset or liability - either directly or indirectly. Level 3: Unobservable inputs - market data are not available and are developed using the best information available about the assumptions that market participants would use when pricing an asset or liability. The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Village has the following fair value measurements as of May 31, 2017: Total Level 1 Level2 Equities Fixed income Mutual funds Exchange-traded products Unit investment trusts $ 70, ,634 1, 157,835 33,456 97,704 $ 70,069 $ 1, 157,835 33,456 97, ,634 Total fair value investments 1,483,698 $1,359,064 $ 124,634 Investments not subject to measurement Total investments 70,511 $1,554,

70 Equity securities, mutual funds, exchange-traded products and unit investment trusts classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Fixed income investments classified in Level 2 are valued using inputs other than quoted prices that are observable and mainly consist of corporate and government bonds. 5. lnterfund balances and activity lnterfund receivable and payable balances and activity as of May 31, 2017 are as follows: lnterfund lnterfund Receivable Payable General Fund $ 698,736 $ 215,947 Water Fund 36,236 Capital Projects Fund 217, ,648 Community Development Fund 577,244 Agency Fund 164 3,969 Totals $ $ 916,044 Transfers In $ 610,450 $ 610,450 Transfers Out $ 610,450 $ The Community Development Fund tracks the Village's expenditures for the Community Development Block Grant ("CDBG") program. CDBG is a reimbursement-type program that requires the Village to incur expenditures before receiving the grant funding. Therefore, the Community Development Fund borrows money from the General Fund to finance those expenditures. The total amount owed to the General Fund as of May 31, 2017 is $577,244. The General Fund owes the Capital Projects Fund for disbursements made that were recorded as capital outlay however, the timing of the cash transfer did not occur before yearend. All interfund loans are expected to be repaid in the subsequent year. 6. Capital assets The Village purchased a parcel of land located at 254 Main Street during the year ended May 31, The Village also made various improvements to Village walkways and roads, as well as the Village's water supply infrastructure. A summary of changes in capital assets follows: Governmental activities: Capital assets that are not depreciated: Land $ Beginning Balance 1, 124,900 Additions $ 1,577,570 $ Deductions Ending Balance $ 2,702,470 Total nondepreciable capital assets 1, 124,900 1,577,570 2,702,470 Capital assets that are depreciated: Buildings Improvements, other than buildings Furniture and equipment Roads, curbs, sidewalks and drainage Water mains 2,234,252 1,495,982 5,592,099 24,282,967 8,217,896 61, , ,396 1,430, ,228 2,295,943 1,633,607 5,843,495 25,713,875 9,019, 124 Total depreciable capital assets 41,823, 196 2,682,848 44,506,

71 Capital assets, (continued) Beginning Ending Balance Additions Deductions Balance Less accumulated depreciation: Buildings $ 1,299,647 $ 91,211 $ $ 1,390,858 Improvements, other than buildings 1,058,812 52,344 1,111,156 Furniture and equipment 3,796, ,957 4,143,397 Roads, curbs, sidewalks and drainage 15, 135, ,072 15,927, 179 Water mains 4,424, , 153 4,683,506 Total accumulated depreciation 25,714,359 1,541,737 27,256,096 Total capital assets, net $ $ 2) $ $ Depreciation expense was charged to governmental functions as follows: General government $ 57, 161 Public safety 250,631 Transportation 892, 138 Culture and recreation 34,764 Home and community services 307,043 $ 11541, Short-term debt Bond anticipation notes ("BANs") are used as a temporary means of financing capital expenditures in the Capital Projects Fund. State law requires that BANs issued for capital purposes be converted to long-term obligations within five years after the original issue date. The notes or renewal thereof may not extend more than two years beyond the original date of issue unless a portion is redeemed within two years and within each 12 month period thereafter. Liabilities for BANs are generally accounted for in the Capital Projects Fund. BANs are generally paid from the proceeds of bond issuance after renewal of these notes. A summary of changes in short-term debt for the Village for the year ended May 31, 2017 is as follows: Beginning Balance Issued Redeemed Ending Balance BAN matured on 11/17/16 at 0.98% $1,850,000 BAN maturing on 11/2/17 at 1.30% $1,850,000 $ $1,850,000 1,000,000 $1,000,000 $1,850,000 $ 1,000,000 $1,000,000 Interest paid for short-term debt for the year ended May 31, 2017 was $16,

72 8. Long-term debt The following is a summary of changes in long-term liabilities: Amounts Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: Bonds payable $ 4,185,000 $ 4,750,000 $ 1,360,000 $ 7,575,000 $ 890,000 Original issue bond premium 33, ,000 9, ,233 14, 176 Bonds payable, net 4,218,410 4,850,000 1,369,177 7,699, ,176 Compensated absences 106,593 31,279 5, ,493 22,368 Judgments and claims payable 221, , ,900 Other post-employment benefits 5,340, , ,072 5,987,935 Total long-term liabilities $ $ $ $ $ Outstanding indebtedness aggregated $7,575,000. Of this amount, $7,555, 733 was subject to the constitutional debt limit and represented approximately 11.9% of this debt limit. Serial bonds - the Village borrows money in order to acquire land or equipment or to construct buildings and improvements. This enables the cost of these capital assets to be borne by the present and future taxpayers receiving the benefit of the capital assets. These long-term liabilities are full faith and credit debt of the local government. During the year the Village issued $4, 750,000 in public improvement serial bonds. The bonds interest rates vary between 1.0% and 2.0%. $1,850,000 of the bonds were used to pay off the bond anticipation note that matured in November 2016, the remaining proceeds are to be used for the construction and improvement of parking lots and roads. The bonds mature August 15, The following is a summary of maturity of long-term bond indebtedness: Description Issue Final Interest Outstanding of Issue Date Maturity Rate at 5/31/17 Public improvement serial bonds 11/1/ /1/ % $ 685,000 Public improvement serial bonds 6/1/2009 6/1/ % 460,000 Public improvement serial bonds 11/15/ /15/ % 710,000 Public improvement serial bonds 7/25/ % 970,000 Public improvement serial bonds 8/15/2016 8/15/ % 4,750,000 $

73 The following table summarizes the Village's future bonded debt service requirements: Princi~al Interest Year Ended May 31, 2018 $ 890,000 $ 180, ,150, , ,000 99, ,000 83, ,000 69, ,160, ,334 $ 71575!000 $ 696!693 Interest on long-term debt for the year was comprised of: Interest on long-term debt for the year was comprised of: Interest paid Less interest accrued in the prior year Plus interest accrued in the current year Amortization of original issue bond premium Interest expense $ $ $ $ Total 1,070,528 1,272, , , ,646 3,301, ,855 (26,934) 86,731 (9, 177) Other long-term debt - in addition to the above long-term debt, the Village had the following non-current liabilities: Compensated absences - represents the value of earned and unused portion of the liability for compensated absences. Compensated absence liabilities are typically liquidated by the fund that gave rise to the liability. Judgments and claims - represents the remaining monies due on judgments given to the Village, including unpaid tax certiorari proceedings which are expected to be paid from future appropriations. The General Fund is typically used to liquidate this liability. Other post-employment benefits - represents the amortized portion of the annual required contribution for the Village's cost of health benefits for retirees. The General Fund and Water Fund are used to liquidate this liability. 9. Pension plans Plan description The Incorporated Village of Farmingdale participates in the New York State and Local Employees' Retirement System ("ERS") which is also referred to as New York State and Local Retirement System (the "System"). This is a cost-sharing multiple-employer defined benefit retirement system. The net position of the System is held in the New York State Common Retirement Fund (the "Fund"), which was established to hold all net assets and record changes in fiduciary net position allocated to the System. The Comptroller of the State of New York (the "Comptroller'') serves as the trustee of the Fund and is the administrative head of the System. The Comptroller is an elected official determined in a direct statewide election and serves a four year term. Thomas P. DiNapoli has served as Comptroller since February 7, In November 2014, he was elected for a new term commencing January 1,

74 System benefits are established under the provisions of the New York State Retirement and Social Security Law ("RSSL"). Once a public employer elects to participate in the System, the election is irrevocable. The New York State Constitution provides that pension membership is a contractual relationship and plan benefits cannot be diminished or impaired. Benefits can be changed for future members only by enactment of a State statute. The System is included in the State's financial report as a pension trust fund. That report may be found at or obtained by writing to the New York State and Local Retirement System, 110 State Street, Albany, NY Benefits provided The System provides retirement benefits as well as death and disability benefits. Tiers 1and2 Eligibility: Tier 1 members, with the exception of those retiring under special retirement plans, must be at least age 55 to be eligible to collect a retirement benefit. There is no minimum service requirement for Tier 1 members. Tier 2 members, with the exception of those retiring under special retirement plans, must have five years of service and be at least age 55 to be eligible to collect a retirement benefit. The age at which full benefits may be collected for Tier 1 is 55, and the full benefit age for Tier 2 is 62. Benefit Calculation: Generally, the benefit is 1.67 percent of final average salary for each year of service if the member retires with less than 20 years. If the member retires with 20 or more years of service, the benefit is 2 percent of final average salary for each year of service. Tier 2 members with five or more years of service can retire as early as age 55 with reduced benefits. Tier 2 members age 55 or older with 30 or more years of service can retire with no reduction in benefits. As a result of Article 19 of the RSSL, Tier 1 and Tier 2 members who worked continuously from April 1, 1999 through October 1, 2000 received an additional month of service credit for each year of credited service they have at retirement, up to a maximum of 24 additional months. Final average salary is the average of the wages earned in the three highest consecutive years. For Tier 1 members who joined on or after June 17, 1971, each year of final average salary is limited to no more than 20 percent of the previous year. For Tier 2 members, each year of final average salary is limited to no more than 20 percent of the average of the previous two years. Tiers 3, 4, and 5 Eligibility: Tier 3 and 4 members, with the exception of those retiring under special retirement plans, must have five years of service and be at least age 55 to be eligible to collect a retirement benefit. Tier 5 members, with the exception of those retiring under special retirement plans, must have ten years of service and be at least age 55 to be eligible to collect a retirement benefit. The full benefit age for Tiers 3, 4 and 5 is 62. Benefit Calculation: Generally, the benefit is 1.67 percent of final average salary for each year of service if the member retires with less than 20 years. If a member retires with between 20 and 30 years of service, the benefit is 2 percent of final average salary for each year of service. If a member retires with more than 30 years of service, an additional benefit of 1.5 percent of final average salary is applied for each year of service over 30 years. Tier 3 and 4 members with five or more years of service and Tier 5 members with ten or more years of service can retire as early as age 55 with reduced benefits. Tier 3 and 4 members age 55 or older with 30 or more years of service can retire with no reduction in benefits. -37-

75 Final average salary is the average of the wages earned in the three highest consecutive years. For Tier 3, 4 and 5 members, each year of final average salary is limited to no more than 10 percent of the average of the previous two years. Tier 6 Eligibility: Tier 6 members, with the exception of those retiring under special retirement plans, must have ten years of service and be at least age 55 to be eligible to collect a retirement benefit. The full benefit age for Tier 6 is 63. Benefit Calculation: Generally, the benefit is 1.67 percent of final average salary for each year of service if the member retires with less than 20 years. If a member retires with 20 years of service, the benefit is percent of final average salary for each year of service. If a member retires with more than 20 years of service, an additional benefit of 2 percent of final average salary is applied for each year of service over 20 years. Tier 6 members with ten or more years of service can retire as early as age 55 with reduced benefits. Final average salary is the average of the wages earned in the five highest consecutive years. For Tier 6 members, each year of final average salary is limited to no more than 10 percent of the average of the previous four years. Special Plans The 25-Year Plans allow retirement after 25 years of service with a benefit of one-half of final average salary, and the 20-Year Plans allow a retirement after 20 years of service with a benefit of one-half of final average salary. Ordinary Disability Benefits Generally, ordinary disability benefits, usually one-third of salary, are provided to eligible members after ten years of service; in some cases, they are provided after five years of service. Accidental Disability Benefits For all eligible Tier 1 and Tier 2 members, the accidental disability benefit is a pension of 75 percent of final average salary, with an offset for any Workers' Compensation benefits received. The benefit for eligible Tier 3, 4, 5 and 6 members is the ordinary disability benefit with the years-of-service eligibility requirement dropped. Ordinary Death Benefits Death benefits are payable upon the death, before retirement, of a member who meets eligibility requirements as set forth by law. The first $50,000 of an ordinary death benefit is paid in the form of group term life insurance. The benefit is generally three times the member's annual salary. For most members, there is also a reduced post-retirement ordinary death benefit available. Post-Retirement Benefit Increases A cost-of-living adjustment is provided annually to: (i) all pensioners who have attained age 62 and have been retired for five years; (ii) all pensioners who have attained age 55 and have been retired for ten years; (iii) all disability pensioners, regardless of age, who have been retired for five years; (iv) ERS recipients of an accidental death benefit, regardless of age, who have been receiving such benefit for five years and (v) the spouse of a deceased retiree receiving a lifetime benefit under an option elected by the retiree at retirement. An eligible spouse is entitled to one-half the cost-of-living adjustment amount that would have been paid to the retiree when the retiree would have met the eligibility criteria. This cost-of-living adjustment is a percentage of the annual retirement benefit of the eligible member as computed on a base benefit amount not to exceed $18,000 of the annual retirement benefit. -38-

76 The cost-of-living percentage shall be 50 percent of the annual Consumer Price Index as published by the U.S. Bureau of Labor, but cannot be less than 1 percent or exceed 3 percent. Contributions The System is noncontributory except for employees who joined the New York State and Local Employees' Retirement System after July 27, 1976, who contribute 3 percent of their salary for the first ten years of membership, and employees who joined on or after January 1, 2010 who generally contribute 3 percent of their salary for their entire length of service. For Tier 6 members, the contribution rate varies from 3 percent to 6 percent depending on salary. Generally, Tier 5 and 6 members are required to contribute for all years of service. Under the authority of the RSSL, the Comptroller annually certifies the actuarially determined rates expressly used in computing the employers' contributions based on salaries paid during the Systems' fiscal year ending March 31. Contributions for the current year and two preceding years were equal to 100 percent of the contributions required, and were as follows: 2017 $ 221, , ,871 Pension liabilities, pension expense. deferred outflows of resources and deferred inflows of resources related to pensions At May 31, 2017, the Village reported a liability of $449,499 for its proportionate share of the net pension liability. The net pension liability was measured as of March 31, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of April 1, Update procedures were used to roll forward the pension liability to March 31, The Village's proportion of the net pension liability was based on a projection of the Village's long-term share of contributions to the pension plan relative to the projected contributions of all participating members, actuarially determined. At May 31, 2017, the Village reported the following liability for its proportionate share of the net pension liability for the System: Actuarial valuation date Net pension liability Village's portion of the Plan's total net pension liability April 1, 2016 $ 449, % For the year ended May 31, 2017, the Village recognized pension expense of $280,216. At May 31, 2017, the Village reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: -39-

77 Difference between expected experience and actual experience Changes of assumptions Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between the Village's contributions and proportionate share of contributions Total Deferred Outflows of Resources $ 11, ,565 89,783 75,664 $ 330,276 Deferred Inflows of Resources $ (68,259) (11,486) $ (79,745) Deferred outflows of resources related to pensions resulting from Village contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended May 31, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: For the year ended: $ 107, ,814 91,655 (56,752) Actuarial assumptions The total pension liability at March 31, 2017 was determined by using an actuarial valuation as of April 1, 2016, with update procedures used to roll forward the total pension liability to March 31, The actuarial valuation used the following actuarial assumptions: Measurement date March 31, 2017 Actuarial valuation date April 1, 2016 Interest rate 7.00% Salary scale 3.80% Decrement tables Inflation rate April 1, 2010 to March 31, 2015 System's Experience 2.50% -40-

78 Annuitant mortality rates are based on April 1, March 31, 2015 System's experience with adjustments for mortality improvements based on MP The actuarial assumptions used in the April 1, 2016 valuation are based on the results of an actuarial experience study for the period April 1, March 31, The long-term rate of return on pension plan investments was determined using a building block method in which best estimate ranges of expected future real rates of return (expected returns net of investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by each target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the target asset allocation as of March 31, 2017 are summarized below: Target allocation Long-term rate Measurement date Asset type Absolute return strategies Bonds and mortgages Cash Domestic equity Inflation-indexed bonds International equity Opportunistic porfolio Private equity Real assets Real estate March 31, % 4.00% 17.00% 1.31% 1.00% (0.25%) 36.00% 4.55% 4.00% 1.50% 14.00% 6.35% 3.00% 5.89% 10.00% 7.75% 3.00% 5.54% 10.00% 5.80% % Discount rate The discount rate used to calculate the total pension liability was 7.00%. The projection of cash flows used to determine the discount rate assumes that contributions from plan members will be made at the current contribution rates and that contributions from employers will be made at statutorily required rates, actuarially. Based upon the assumptions, the System's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore the long term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the proportionate share of the net pension liability to the discount rate assumption The following presents the Village's proportionate share of the net pension liability calculated using the discount rate of 7.00%, as well as what the Village's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.00%) or 1-percentage-point higher (8.00%) than the current rate: -41-

79 1% Decrease (6.00%) Current assumption (7.00%) 1% Increase (8.00%) Employer's proprtionate share of the net pension (asset) liability $ 1,435,612 $ 449,499 $ (384,257) Pension plan fiduciary net position The components of the current-year net pension liability of the employers as of March 31, 2017, were as follows: (Dollars in Thousands) Valuation date Employers' total pension liability Plan net position Employers' net pension liability Ratio of plan net position to the em players' total pension liability April 1, 2016 $ 177,400, ,004,363 $ 9,396, % 10. Length of Service Award Program ("LOSAP or "Program") Program description The Village sponsors a defined benefit LOSAP effective January 1, 1992 for active volunteer firefighter members of the Village. The Program provides municipally-funded deferred compensation to volunteer firefighters to facilitate the recruitment and retention of active volunteer firefighters. The Village is the Sponsor of the Program and the Program Administrator. Funding policy The Program was established pursuant to Article 11-A of the New York State General Municipal Law. The Program is non-contributory. The Village is required to contribute the total amount sufficient to cover the normal cost of the plan. Participation. vesting and service credit In a defined benefit LOSAP, participating volunteers begin to be paid a Service Award upon attainment of the Program's Entitlement Age. An eligible Program Participant is defined by the Program Sponsor to be an active volunteer firefighter who is at least 18 years of age and has earned one year of Service Award Program Service Credit. The amount of the service award paid to a participant is based upon the number of years of Service Credit the volunteer earned under the Program for performing active volunteer firefighter activities. -42-

80 Participants acquire a non-forfeitable right to be paid a Service Award after earning credit for five years of service or upon attaining the Program's Entitlement Age while an active volunteer. The Program's Entitlement Age is 62 for participants active after December 31, 2004, or 65 for participants active before January 1, An active volunteer firefighter earns a year of Service Award Program Service Credit for each calendar year after the establishment of the Program in which he or she accumulates fifty points. Points are granted for the performance of certain firefighter activities in accordance with a system established by the Sponsor on the basis of a statutory list of activities and point values. A Participant may also receive Service Award Program Service Credit for five years of active volunteer firefighting service rendered prior to the establishment of the Program as an active volunteer firefighter member of the Village. Benefits A Participant's Service Award benefit is paid as a continuous monthly payment life annuity. The amount payable each month equals $20 for each year of service credit. The maximum number of years of Service Credit a Participant may earn under the Program in 20 years. Currently, there are no forms of payment of a volunteer's earned Service Award under the program. Except in the Case of Pre-Entitlement Age death or total and permanent disablement, a Participant's Service Award will not be paid until he or she attains the Entitlement Age. Volunteers who are active after attaining the Entitlement Age and who may have commenced receiving a Service Award have the opportunity to earn Program credit and to thereby increase their Service Award payments. The Pre-Entitlement Age death and disability benefit is equal to the actuarial value of the Participant's earned Service Award at the time of death or disablement. If the participant was an active volunteer firefighter at the time of death, the minimum death benefit is $10,000. The Program does not provide extra line-of-duty death or disability benefits. The minimum $10,000 death benefit is funded through a group term life insurance policy. All death and disability benefits are self-insured and are paid from the Program Trust Fund. Fiduciary investment and control After the end of each calendar year, the Village prepares and certifies a list of names of all persons who were active volunteer members of the fire department during the year indicating which volunteers earned fifty points. The certified list is delivered to the Board of Trustees for their review and approval. The Village must maintain the point system records to verify each volunteer's points on forms provided and/or approved by the Board of Trustees. The Board of Trustees has retained Penflex, Inc. ("Penflex") to assist in the administration of the Program. Based on the certified calendar year volunteer firefighter listings, Penflex determines and certifies in writing to the Board of Trustees the amount of the Service Award to be paid to the Participant or to a Participant's designated beneficiary. The person(s) authorized by the Board of Trustees then authorizes, in writing, the custodian of the Village's LOSAP Trust Fund to pay the Service Award. No Service Award benefit payment is made without the written certification from Penflex and the written directive from an authorized representative of the Board of Trustees. Penflex bills the Village for the services it provides. Penflex's invoices are authorized for payment by the Board of Trustees in the same manner as any other invoice presented to the Village for payment. The Village pays Penflex invoices from its General Fund. -43-